Can I Have Holiday Debt Discharged in a New Year Bankruptcy?

The holiday season might be a festive time for families and friends, but it is also a costly time of the year. According to a recent CNBC report, about 28 percent of credit card users are still making payments on holiday debt from 2023 while planning to take on additional debt this holiday season. Indeed, estimates suggest that consumers are likely to spend an average of $1,778 during the holidays this year, which is an 8 percent increase from last year. In total, Americans will collectively spend $989 billion this holiday season at a time when credit card debt has now exceeded $1.14 trillion, according to CNBC. Moreover, Americans more than other holiday shoppers tend to “splurge” or “overspend” on gifts, travel, and more.

If you are like many Americans — dealing with credit card debt and planning to take on additional costs over the holidays — you may be considering options for managing your debt in the New Year. One possibility you may be considering is bankruptcy. If you file for bankruptcy in the New Year, you may be wondering: will it be possible to have holiday debt discharged? Our St. Petersburg bankruptcy attorneys can tell you more.

Luxury Goods or Services as an Exception to Discharge 

Depending on when you file for bankruptcy, and if you are seeking a relatively quick discharge of debts in a Chapter 7 case, it is important to know about exceptions to discharge under the US Bankruptcy Code. The Bankruptcy Code explicitly identifies “luxury goods or services” as exceptions to discharge, and recent holiday debt could fall into this category.

What is included in “luxury goods or services”? There are two different types of debt you should consider here. First, the Bankruptcy Code identifies luxury goods or services as “consumer debts owed to a single creditor and aggregating more than $800” — and this number increases over time — that are incurred in the 90-day period prior to the bankruptcy filing. An exception to this specific exception to discharge is a charge for “goods or services reasonably necessary for the support or maintenance of the debtor or a dependent of the debtor.” To be clear, aside from goods or services that are “reasonably necessary,” it may not matter what the charges are for — exceeding that amount to a single creditor will often be considered nondischargeable luxury goods or services.

In addition, you should know that the Bankruptcy Code also specifies that “cash advances aggregating more than $1,100 [this number also increases over time] 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.” To put that in simpler terms, if you take a credit card cash advance exceeding $1,100 in the 70-day period before filing for bankruptcy, that debt will be nondischargeable.

Timing Your Bankruptcy Filing 

Whether you have already made charges on your credit card to travel for the holidays, or taken credit card cash advances in order to pay for gifts, it is important to think about the timing of your bankruptcy filing in the New Year.

If you file within 90 days of charging “luxury goods or services” for holiday purposes, or within 70 days of taking a substantive cash advance for the same or similar reasons, that debt is likely to be nondischargeable. Moreover, such charges could amount to presumptive fraud. An attorney can help you to plan your bankruptcy filing and to consider the dischargeability of your debt.

Contact a Bankruptcy Attorney in St. Petersburg, Florida 

If you are struggling with debt and considering the possibility of bankruptcy, you should get in touch with an attorney who can help. An experienced St. Petersburg bankruptcy lawyer at the Law Offices of Stephen Barszcz can answer any questions you have, and our firm can take a close look at your specific finances in order to advise you on issues of discharge in a consumer bankruptcy case. Contact us today for more information.

Sources:

law.cornell.edu/uscode/text/11/523#fn002027

cnbc.com/2024/10/21/28percent-of-credit-card-users-are-still-paying-off-last-years-holiday-debt.html

cnbc.com/2024/10/16/holiday-shoppers-plan-to-spend-more-while-taking-on-debt-this-season.html