Cyber Monday and Bankruptcy
Can a debtor run up credit cards on cyber Monday and file bankruptcy on Tuesday?
No. Running up credit cards just before filing for bankruptcy is a bad idea. Why? If at the time a debtor makes a credit card charge he intends to file bankruptcy, that’s called fraud. Claims for fraud survive bankruptcy if the creditor takes prompt action. Specifically, under 11 U.S.C. § 523(a)(2)(C)(i), charges of $650 or more for consumer purchases made within the 90 days before filing (and cash advances of more than $925 within the previous 70 days) are presumed to be non-dischargeable. Ouch.
What about debit card transactions? Assuming that there is money in the bank to cover the charge, if a consumer swipes a debit card to pay for a Venti Carmel Mocha Latte while at the mall and then files bankruptcy the next day, Starbucks will get paid and the trustee most likely cannot get the money away from the debtor or Starbucks, even if the transaction posts a few days later. That’s because most banks’ debit card agreements don’t allow “stop payment” orders on debit card transactions.
Beware of floating checks, however. Because the consumer does have a right to put a stop payment on an outstanding check, if a debtor pays his attorney with a check and the dumb lawyer files a bankruptcy petition for the debtor before the check clears, the trustee will want the money. Make your lawyer pay for that mistake.
Strangely, if you already have significant credit card debt, it can also be a bad idea to make large payments to just one or two creditors just before filing. That’s because any payments of $600 or more made to unsecured creditors during the 90 days prior to bankruptcy filing are subject to being clawed back from the creditor by the bankruptcy trustee. Note that this doesn’t really affect the debtor’s pocketbook. Rather, the trustee takes the money from the preferred creditor and, after deducting an administrative fee, distributes the funds pro rata to the unsecured creditors.
So enjoy cyber Monday, but do so with a pure heart.
© 2015 Clark Stith
We are a debt relief agency. We help people file for bankruptcy under the Bankruptcy Code.[wpfblikebox]