The holidays are a time of indulgence and frivolity, in addition to gift-giving. Many people overspend during the holidays, because they want to buy more gifts for their family and friends. However, with the coronavirus, extra bills and job losses after the holidays, you may be feeling a little overwhelmed. You may think that filing for bankruptcy may be the answer. Here is information for you about holiday credit card bills during the bankruptcy process.
Holiday Debts in Bankruptcy
There are two types of bankruptcy for individuals or families–Chapter 7 Bankruptcy and Chapter 13 Bankruptcy. In a Chapter 7 bankruptcy, all of your debt is discharged, which means that all of your debt will be eliminated through the bankruptcy. In a Chapter 13 plan, your lawyer will sit down with your creditors and work out a payment plan.
With a Chapter 7 bankruptcy, there are exceptions to the law, especially when it comes to credit card debt. One of the most notable exceptions is with the “luxury goods” clause. If you purchased any item with your credit card that was over $650 as a gift, you cannot discharge that debt. Bankruptcy law prohibits you from purchasing luxury items for 90 days before you declare bankruptcy. There are many items that people buy over the holiday season that could amount to over $650: jewelry and electronics come immediately to mind.
If you did purchase an item that is over $650 on your credit card, and you want to declare bankruptcy, what should you do? You can wait the 90 days after your luxury item purchase and then you can declare bankruptcy, or you may want to switch to a Chapter 13 bankruptcy instead, where this rule may not apply. You can also return the item to the store for a refund before you file for bankruptcy.
There are some exceptions to the rule of luxury items in a bankruptcy. The court does not specify what can be considered a luxury item, so it is up to each judge to make that decision. An item that you might consider a luxury may not be counted. If you have concerns about your credit card debt in bankruptcy, speak with a bankruptcy attorney.
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