It's my understanding that if one uses a credit card to take over $875 in cash advances within 70 days of filing a chapter 7 bankruptcy, that debt is presumed to be non-dischargeable debt.
Is this also true for lines-of-credit?
Let's say I have an unsecured bank line-of-credit totaling $35k. A year ago, I borrowed $30k from the line-of-credit. Today I borrow the remaining $5k. In 65 days I file for chapter 7 bankruptcy. Is the $5k I borrowed today presumed to be non-dischargeable debt?
Wow. Presumptions can be rebutted. If the $875 was used for groceries for a large family and to pay for basic needs, the presumption may be able to be overcome.
For the line of credit, was the $5k paid to your doctor to save your wife's life?
Anything within 90 days will be examined.
conversely, if you had receipts for and bought $5000 worth of new evening gowns, the judge would rule that to be abuse.
If you are looking to "edge" this sharply, don't.
Be honest. Use reasonableness and justify what you do pre-petition with tracing.
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The law doesn't use the words "credit card" to create this presumption, it uses the phrase "open end credit plan". The phrase is taken from TILA, where it means "a plan under which the creditor reasonably contemplates repeated transactions, which prescribes the terms of such transactions, and which provides for a finance charge which may be computed from time to time on the outstanding unpaid balance." I would have a hard time arguing with a straight face that a line of credit that you can draw against from time to time is not an open-end credit plan within this definition.
Regardless of whether drawing against the LOC would be presumed fraudulent, the fact that you've even asked the question demonstrates that it actually WOULD be fraudulent. That is, you have no intention of paying it back because you're hoping to discharge the obligation in bankruptcy.
T be more precise, it is not that the debt is presumed to be non-dischargeable debt. Usage of credit 90 days prior to the filing shifts the burden of proof with respect to fraud/abuse onto the debtor.
Burden of proof means that the debtor, not the creditor, could be required to show evidence that the transactions were not fraudulent or abusive. As other counsel pointed out, credit used for emergencies, basic necessities, could still be considered dischargeable. It depends what the money was used for, hopefully not to pay your attorney to file the case or pay off some other creditors - both of these transactions would be problematic.
The other counsel is also correct, from the moment you are contemplating filing a bankruptcy case, transactions incurred after that could be construed as fraudulent and abusive. In contemplating bankruptcy you acknowledge you are having financial difficulty and unable to repay your creditors. Adding more debt at this point for anything more than dire needs is risky. If the court makes findings that your petition was filed in bad faith, that could impact your entire case, all debts, not just this particular creditor.
My colleagues are correct. I would only add that allowing the presumption period to expire then filing does not mean one would be home free, just that the burden of proof shifts from you to the creditor. The fact that you have asked this question and received the responses to your question would be evidence that if you do take the advance from the line of credit then file bankruptcy, that you had no intent to repay the loan at the time you took the advance. The question for the court to determine is your intent at the time of the advance not when you took the advance. You could have taken the advance a year or more prior to filing your bk, but if you did not intend to repay the debt when you took the advance, that is fraud and the debt would be determined to be non-dischargeable.
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