Some people figure that they are going to eliminate all of their credit card debt, so they might as well go on a spending spree and "max out" their credit cards. This is a bad idea because it demonstrates dishonesty. What’s worse, when you buy luxuries before bankruptcy in San Diego, this can create a legal presumption of fraud, making your credit card debt nondischargeable, meaning you cannot eliminate the debt.
When You Buy Luxuries Before Bankruptcy in San Diego
Charging credit cards before bankruptcy is generally a bad idea. When you charge your credit cards up before you file, the issuing bank or lender could ask the Court to make a legal determination in your case that the charges were made through actual fraud and ask for an order that the credit card balances survive your bankruptcy filing. In that case, you will not be able to eliminate the credit card debt, which may be one of the main reasons you are filing for bankruptcy protection. In order to object to the discharge of your debt, your lender's lawyers would need to file appropriate paperwork with the Court, requesting a determination that your credit card debt owed to that lender is nondischargeable. On what basis would a lender to this? Well, cost is always a consideration, as lawyers are expensive. But there are other considerations as well.
When you entered into a credit card agreement with your lender your lender agreed to extend you credit to make purchases and you agreed to pay for the charges that you make on your cards. So each time you make a charge there is an actual and implicit promise that you are going to pay back those charges. If you are out in the department stores lavishly spending on your cards before you file bankruptcy, the court could find that at the time that you made the charges you already knew you were going to file bankruptcy and not pay the charges. Therefore, the court could find that, at the time that you ran the charges on your credit card, you were making a false promise to repay the charges. A false promise is a form of fraud under San Diego bankruptcy law. Debts incurred through fraud can survive your case.
Charging up credit cards for luxuries has even more severe consequences. Under Federal law, if you buy luxury goods on credit cards before you file bankruptcy in San Diego, the burden of proving fraud, or lack thereof, falls on you. In contrast, if you had not purchased luxuries but just made charges for the necessaries of life on your credit card before bankruptcy, the burden of proving fraud would fall on your creditor's shoulders. Bankruptcy law provides that if charges are made for items that are considered luxuries and the luxury items are purchased within 90 days prior to filing your case, the charges are presumed to be fraudulent. "Presumed" means that there is a presumption of fraud that shifts the burden of proof to you to show that the charges were not incurred through fraud.
A detailed discussion of what constitutes luxury goods is very technical and is beyond the scope of this blog post, but generally speaking luxuries items that are not ordinary and necessary expenses. A good rule of thumb is to stop spending on credit cards once you know that you are going to file bankruptcy. Of course, the shorter the time span between when you stop using your creditors cards and stop paying on them, and the day you file your case, the greater the implication of fraud in the legal sense, meaning you knew you were going to file bankruptcy but keep running up charges without the intent to repay them.
