One of the changes the 2005 bankruptcy law made was to lower the minimum amount of debt a debtor could take on within 90 days of filing bankruptcy for spending on “luxury goods and services.” If the amount of debt is greater than this minimum threshold, then the debt is presumed to be fraudulent and therefore nondischargeable. Thus, there are several reasons for those considering filing Las Vegas bankruptcy to know about luxury goods and services.
(1) The new law reduced the amount of debt spent on luxury goods from $1,225 to merely $500 within 90 days of filing. This sum is not indexed to inflation.
(2) That $500 limit applies only to debt taken from a single creditor for luxury goods and services. It does not apply to all spending on luxuries. This means, in theory, that a debtor could take on more than $500 so long as it was owed to different creditors and no one creditor is owed more than $500.
(3) On the other hand, the $500 amount is an aggregate limit, meaning that multiple purchases owed to a single creditor tally towards the $500 total.
(4) If the debt obtained for luxury goods and services was somehow secured, i.e. it was not consumer debt, then it’s dischargeable at any amount. This is exceedingly rare, if it occurs at all.
(5) Importantly, the bankruptcy code [http://www.law.cornell.edu/uscode/text/11/523] defines luxury goods and services by what they are not. The term does not include, “goods or services reasonably necessary for the support or maintenance of the debtor or a dependent of the debtor.”
(6) If a creditor believes the petitioner fraudulently purchased luxuries, then it will almost initiate an adversary proceeding against the petitioner to make the debt nondischargeable. This means that whether a purchase is a luxury good is largely up to the bankruptcy judge’s discretion.
The bankruptcy code is very vague as to what is or is not a luxury good or service. It is, however, fairly generous to petitioners. The purpose is to prevent debtors from going on spending sprees and then discharging the debt in bankruptcy. Given that the time limit is only 90 days, and that the debtor will have other requirements to fulfill before filing, e.g. mandatory credit counseling, most debtors don’t encounter the problem of determining whether a purchase is a luxury. Even if one goes over the $500 limit, for instance to buy a new refrigerator, so long as it’s not a high-end model with needless features, it will probably still slip by. That said, luxury goods and services are just one of the many pitfalls in the bankruptcy code that a creditor can use against you, which is why an experienced Las Vegas bankruptcy attorney is necessary for handling your case effectively.
For more questions about bankruptcy in Las Vegas, please feel free to contact an experienced Haines & Krieger Las Vegas bankruptcy attorney for a free initial consultation. Call us at 702-880-5554 to set up your free consultation.