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Last-Minute Luxury Debt Presumed Non-Dischargeable Under Chapter 7

Chapter 7 Bankruptcy, also called “straight bankruptcy,” generally discharges all debts incurred prior to the debtor’s filing, and is intended to provide an individual debtor with the relief necessary to make a fresh start.

However, not all debts are dischargeable under Chapter 7. Among the exceptions to discharge are certain last-minute consumer debts owed by an individual debtor for “luxury goods or services.”

Last-Minute Debt Presumed Fraudulent

As mandated by Section 523 of the Bankruptcy Code, an individual debtor will not be discharged from any debt obtained by fraud. Certain last-minute debts incurred by an individual debtor within a certain period of time before the order for Chapter 7 relief are presumed to be fraudulent and non-dischargeable, including:

  • Consumer debts owed to a single creditor and aggregating more than $500 for “luxury goods or services” on debts incurred on or within 90 days before the order of relief
  • Cash advances aggregating more than $750 that are extensions of consumer credit under an open end credit plan incurred on or within 70 days before the order of relief

Exception to Discharge for Luxury Goods or Services

The debts for “luxury goods or services” that are usually not forgiven by a bankruptcy judge under a Chapter 7 plan for relief include large debts for non-necessities, such as debts for a vacation, hobby or entertainment incurred just before filing.

Goods or Services Reasonably Acquired

However, “luxury goods or services” do not include goods or services “reasonably acquired for the support or maintenance of the debtor or a dependent of the debtor.” This means that consumer debts incurred just before filing for goods or services that are reasonably necessary for daily maintenance will be discharged under Chapter 7, and are not included among the exceptions to discharge.

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