Christmas Shopping and January Bankruptcy

As we approach the Christmas holiday season, I want to remind my readers of two things. First and foremost, I want to wish all of my clients and blog readers a happy and healthy holiday season. Financial struggles will come and go but if you have your family and your health, not a whole lot of other things matter.

Secondly, I would respectfully suggest that it is never too late to begin the process of tackling your financial issues. Over the years I have met with many potential clients in January and February who bring me credit card bills containing charges incurred for presents in November and December. They are ready to make a fresh start and want to file.

On more than one occasion I heard the explanation “well, I knew that I was going to have to file bankruptcy at some point – but I wanted my family to enjoy a nice Christmas first.”

From my perspective as a bankruptcy lawyer, this attitude will get you in trouble. Common sense should tell you that you cannot run up your credit cards buying gifts, then wipe out that debt a month or two later by filing bankruptcy.

Not surprisingly the Bankruptcy Code addresses the issue of “credit card binge” debt as well.

Section 523(a)(2) excepts from discharge debt that was obtained if an individual made material and false representations about his financial condition (i.e. , lies on the credit application).

Section 523(a)(2)(C) provides that:

consumer debts owed to a single creditor and aggregating more than $500 for luxury goods or services (luxury goods defined as goods or services reasonably not necessary for the support or maintenance of the debtor or a dependent of the debtor) incurred by an individual debtor on or within 90 days before the order for relief under this title are presumed to be nondischargeable; and
cash advances aggregating more than $750 that are extensions of consumer credit under an open end credit plan obtained by an individual debtor on or within 70 days before the order for relief under this title, are presumed to be nondischargeable;

Section 523(a)(2)(a) excepts from discharge money, property or services incurred by false pretenses, a false representation, or actual fraud (i.e. incurring debt that you knew or should have known that you would not be able to repay)

As a practical matter this means that if you incur several hundred or several thousands of dollars of charges in December then try to discharge that debt in January or February, credit card lenders have three potential arguments to object to the discharge of that debt. Further, the last thing you want to face in your bankruptcy case is discharge litigation, as litigation is expensive and risky.

When I meet with clients in January and February who show me Christmas credit card statements, I will advise them to wait four to six months at a minimum and to make regular payments during that period.

So, if you are already in debt, or unemployed, I urge you to fight the impulse to use your credit cards to purchase gifts that you cannot afford. The satisfaction you will feel giving those gifts will shortly give way to frustration when your bankruptcy lawyer tells you that you have to wait.