Bankruptcy helps relieve the burden of credit card and loan
debts, medical bills, back utilities and rent, and so forth.
But there are some debts that bankruptcy does not affect;
that are “immune” from a bankruptcy discharge - the word is
“non-dischargeable”. This means that when the smoke clears and the bankruptcy
is over, these debts will still have to be paid.
My previous blogs were about taxes, traffic fines, speeding tickets and their ilk, student loans and Intentional Debt - that is, lying to get a loan – either by preparing
a false financial statement or otherwise.
11 USC
523(a)(2) is the part of the Bankruptcy Code that lists what debts are discharged
or not discharged. A debt is presumed to be non-dischargeable in bankruptcy if
it is a consumer debt that you owe to a single creditor for more than $500.00
used to by luxury goods or services incurred within ninety days of filing bankruptcy.
Suppose you buy a
couch for three thousand dollars. The next week you file bankruptcy. If you used
an in-house company card, the debt will likely be secured and you will either
have to keep paying for it or let it go back.
If you used your
credit card, you might face the kind of non-dischargeability action I am
talking about. It was a consumer debt (as opposed to a business debt) for
$500.00 or more made within 90 days of filing for bankruptcy.
The only thing
that might save you is the “luxury goods” part of the law. A luxury good is
defined in this part of the bankruptcy code as something that is NOT “…
reasonably necessary for the support or maintenance of the debtor or a
dependent …”
What the judge
will have to determine is whether a three thousand dollar couch is reasonably
necessary.
Good luck with
that. As a debtor’s attorney, even I would have a hard time believing
that a $3,000.00 couch is reasonable and necessary. I wouldn’t even CONSIDER buying a $3,000.00
couch unless there was $2,000 in cash stuffed in the cushions.
“But it was for
my adult daughter. She’s handicapped and has lived with me all her life. The
couch is specially designed for her – we had to get a prescription from her
doctor to get it. It helps her back and legs. Without it she is in excruciating
pain…”
That changes
everything. See?
And let’s hope
you included that $3,000.00 couch on your Schedules, either as a household
belonging or a medical aid. As mentioned in my previous blog; even if the debt
is ruled dischargeable if you did not list the couch itself you could be in
trouble with the Trustee!
***
Also, debt is presumed
to be non-dischargeable in bankruptcy if it is a cash advance (through credit
cards or extensions of credit from a bank or loan company) that totals more
than $750.00 within seventy days of filing bankruptcy.
This is pretty
obvious: you get a cash advance on a credit card, or a loan from a finance
company, of a thousand dollars and then the next week you file bankruptcy. It
will survive the bankruptcy – no matter if you used it to pay bills or even
your bankruptcy fees.
There is a
section of the bankruptcy petition where you list payments of $600.00 or more
during the 90 days before you file bankruptcy. As stated above, you had best
list the payments you made with that cash advance – or at least list the cash
you are still holding – on your schedules to avoid trouble with the Trustee.
***
Note that the creditor has to bring an action
with the bankruptcy court – the dischargeability is not automatic. If the
creditor does not file a Motion to Determine Dischargeability in time – the
debt WILL discharge. But that is the risk you have to take when filing a
bankruptcy so soon after incurring a loan.
***
If the creditor wins and the debt is ruled non-dischargeable,
it will survive the Chapter 7 bankruptcy and you will have to resume paying it
when the bankruptcy case is over. In a Chapter 13, any amount not paid by the
disbursing Trustee will survive, including unpaid interest (if the original
loan allowed for interest). In neither kind of bankruptcy will you have to pay
on the debt during the bankruptcy.
***
But before it
comes to that, is there a solution?
They are
“presumed” to be non-dischargeable. This means the judge will take into
consideration why you bought the item/got the cash and what happened in
between. The couch for the daughter is a good example.
Twenty years ago
I represented a widow whose husband in his final days racked up a huge credit
card bill from Sears. The attorney for Sears asked her about what was bought –
a tiller, a lawnmower, yard equipment, etc. He had a list of the purchases and
quizzed her (nicely) on it. She said her husband likely gave the things away to
friends and neighbors. Did she have any of these items at home? No. Was she
aware of the purchases? No. She said her husband was having memory and other
age-related mental problems in the year before he died (when these purchases
were made). When the questioning was over and she left the courtroom the
attorney for Sears (who was a very kind gentleman in any regard) caught my eye,
shook his head and waved his hand. He did not pursue the dischargeability
action.
The phrase to use
is “intervening circumstance”. I have
two true examples I will give you next time.
Copyright
2016 Michael Curry
My name is
Michael Curry and I have practiced law in Mount Vernon, Fairfield, Flora and
throughout Southern Illinois since 1992. During that time, I have helped more
than 5,000 people (and businesses) overcome their financial difficulties by
filing for bankruptcy. As a solo practitioner, I will also be happy to help
protect you and your family’s future with estate planning, wills,
powers-of-attorney, real estate transactions and other legal services.
Please
call or text me at 618-246-0993, email me at michael.curry.law@gmail.com or send me a letter: 123 South 10th Street, Suite 507, PO Box 93, Mount
Vernon, IL 62864
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