Bankruptcy provides a relief to debtors who are facing unsurmountable debt and is an avenue towards better financial management. While the remedy bankruptcy affords is a wipe out of old debt that was incurred prior to filing for bankruptcy, it is important that debtors are aware and cautious about how they are spending their money in the 90 days prior to filing for bankruptcy
Certain financial transactions within those 90 days prior to filing for bankruptcy, may cause issues in a debtor’s bankruptcy case. A debtor filing for bankruptcy may spend money on reasonable and necessary expenses, such as groceries, mortgage payments, utility bills, apartment rent, and car payments. However, debtors may not spend money on luxury items or services. Luxury expenses include, purchasing a new 65 inch television or a new luxury car, an unnecessary cosmetic surgery, or a luxury vacation. A debtor who makes these types of purchases just prior to filing for bankruptcy, will run the risk of possibly not having that debt discharged in their bankruptcy. There is a legal presumption that debts owed to any creditor incurred within the 90 day period prior to filing for bankruptcy, totaling more than $800, is not dischargeable when the debt was incurred for luxury items or services. Moreover, if the debt is a cash advance made within the 70 days prior to filing for bankruptcy and totaling more than $1,100, that debt is also not dischargeable. Therefore, it is important that a debtor who is filing for bankruptcy be cautious of expenses made just prior to filing for bankruptcy. If money is limited, a debtor should prioritize spending money on bills and necessary living expenses, rather than old debt or luxury items or services. It is not necessary for a debtor to spend money on old debt such as credit card debt, because credit card debt will be discharged in the debtor’s bankruptcy. Immediately after a debtor files for bankruptcy, the automatic stay kicks in and protects the debtor from creditors. Creditors may not pursue debt collection actions against the debtor once the automatic stay is in effect. Debt collection actions include: harassing phone calls, bills demanding collection of payment, and potential lawsuits.
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