Credit Card Luxury Debt Or Not?

[JoyLegai]

Hello everyone.

I have been contemplating filing for this version of bankrupcy. I live within Ohio in my 30's.

I have 3 credit cards which I assume at this time to be unsecured. On these cards I have made varying puchases..a tablet, make-up, cheap clothes, bedding, books, games, dvd's and so on. Not medical, food, or really basic items needed to survive. This debt has accumulated in 2 years. I make payments, sometimes minimum and sometime more. My income rests around $11,000. My total cards debt is around $13,000. The one card I have had over 10 years, one for over 8. I always paid off the thousands on debt.

I used to live with my parents and had more money available. I just spent more than I can handle. Iresponsible. I have had the intention to pay debt off like making payments on time. I own no card and rent an apartment with a roommate. The most expensive item I own is my $300 tablet.

I just do not understand if my situation allows bankrupcy. I know only what I Google--like fraud debt, not worth bankrupcy until $30,000. I cannot look forward to waking up everyday with not even $30 to spend for groceries. I have really dug my grave. I would like to hear information about the possibility of having a legit case. Many advance thanks.

[LadyInTheRed]

Weather something is a luxury purchase comes into play only if a creditor decides to file a complaint to have debt considered non dischargeable because it was incurred fraudulenty, e.g., without the intent to pay, within 90 days of filing bk. If such a complaint is filed and you made luxury purchases that resulted in debt totaling over $600 to one creditor within 90 days of filing bankruptcy, then there is a presumption that you incurred that debt without the intent to pay. To avoid that particular debt being declared non-dischargeable, you would have to prove the charges weren't fraudulent. If a creditor files a suit for debt incurred more than 90 days before you file BK, then the creditor must prove that you incurred the debt while you were insolvent and did not intent to pay it, or it was otherwise fraudulent.

The things you mention don't sound like luxuries to me, except maybe the tablet. But, a $300 purchase isn't enough to trigger the presumption. The law defines what is not a luxury, but doesn't describe what is a luxury. If it becomes an issue, a judge would decide. A creditor will not bother filing a complaint if it doesn't make financial sense, especially if they have the burden of proof. With $13000 spread over 3 credit cards, it is pretty unlikely that any creditor will bother.

Here's the text of the applicable law:

(a)A discharge under section 727, 1141, 1228(a), 1228(b), or 1328(b) of this title does not discharge an individual debtor from any debt—
...

(2)for money, property, services, or an extension, renewal, or refinancing of credit, to the extent obtained by—

(A) false pretenses, a false representation, or actual fraud, other than a statement respecting the debtor’s or an insider’s financial condition;

(B)use of a statement in writing—

(i) that is materially false;
(ii) respecting the debtor’s or an insider’s financial condition;
(iii) on which the creditor to whom the debtor is liable for such money, property, services, or credit reasonably relied; and
(iv) that the debtor caused to be made or published with intent to deceive; or

(C) (i) for purposes of subparagraph (A)—

(I) consumer debts owed to a single creditor and aggregating more than $500 for luxury goods or services incurred by an individual debtor on or within 90 days before the order for relief under this title are presumed to be nondischargeable; and
(II) 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; and

(ii) for purposes of this subparagraph—

(I) the terms “consumer”, “credit”, and “open end credit plan” have the same meanings as in section 103 of the Truth in Lending Act; and
(II) the term “luxury goods or services” does not include goods or services reasonably necessary for the support or maintenance of the debtor or a dependent of the debtor.

https://www.law.cornell.edu/uscode/text/11/523

[bcohen]

None of these items sound like luxury purchases, especially if they were made over a period of months or years. In any case, the dollar amounts in question are small potatoes to a creditor, and are far less than the cost to file an AP.

That being said, I am not sure that bankruptcy is your best option at this time. If your annual income is really as low as you say, then you are essentially collections-proof, as you do not earn enough to have your wages garnished. Also, it is entirely possible that you will have other unexpected expenses--such as medical bills--which could result in incurring more debt. Therefore, your best option may very well be to quit paying all of your unsecured debts and hold off on filing for bankruptcy until and unless one of your creditors files a lawsuit.

[JoyLegai]

The things you mention don't sound like luxuries to me, except maybe the tablet. But, a $300 purchase isn't enough to trigger the presumption. The law defines what is not a luxury, but doesn't describe what is a luxury. If it becomes an issue, a judge would decide. A creditor will not bother filing a complaint if it doesn't make financial sense, especially if they have the burden of proof. With $13000 spread over 3 credit cards, it is pretty unlikely that any creditor will bother.

Thank you so much for your reply. I think I understand most of what you explain, but the 'luxury' description is still confusing, as it seems maybe it is intentional. I guess I can figure it as very big purchases like vacations, costly cars, big electronics like computer (although that COULD be necessary depending), smartphones, etc.

[JoyLegai]

None of these items sound like luxury purchases, especially if they were made over a period of months or years. In any case, the dollar amounts in question are small potatoes to a creditor, and are far less than the cost to file an AP.

Are they really that small to them? To me they seem quite large because I've become very close to my cards' limits. I figure they have set these specific limits to my cards to avoid me not paying more than they would want to be paid back- a safety net. I really appreciation your explanations because this is very much confusing to me.

Also, it is entirely possible that you will have other unexpected expenses--such as medical bills--which could result in incurring more debt. Therefore, your best option may very well be to quit paying all of your unsecured debts and hold off on filing for bankruptcy until and unless one of your creditors files a lawsuit.

The one thing I have been fortunate enough to have is my medical to be wiped out by the hospital. I have had to major surgeries, both of which were discharged because of my income. But I see exactly your point as medical is ridiculous! I don't know how ANY facility, practice, doctors could expect people to pay back thousands upon thousand of hospital bills.

Lawsuits terrify me. I never expected I'd be in this situation and have people out to get me. How do lawsuits affect bankruptcy? The credit card companies would of course win against me, so would that not be not covered through bankruptcy? Also, if my wage are safe, I am also terrified of collectors calling my work. I know they have done that to people.

Thank you again for helping me to understand all of this.