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Filing Bankruptcy After Taking a Cash Advance — Beware

Discharging cash advances in Chapter 7 bankruptcy [1]Written by Craig D. Robins, Esq.
 
Most of my Chapter 7 bankruptcy clients have rather large amounts of credit card debt.  This comes from making purchases, incurring services charges and interest, and taking cash advances.  Almost all credit card debts are dischargeable in bankruptcy.  However, there are a few exceptions.
 
When it comes to cash advances, those about to file for bankruptcy should be careful.  The Bankruptcy Code provides that any cash advance, or combination of cash advances from one lender, totaling more than $875 obtained within 70 days of the bankruptcy filing date are presumed to be non-dischargeable.  This is contained in Bankruptcy Code section 523(a)(2)(C)(i)(II).
 
Congress imposed this provision because it felt that consumers who obtained significant cash advances relatively close to time they filed for bankruptcy knew or should have known that they would be seeking bankruptcy relief, and should not be able to eliminate such debts.  It was also designed to prevent consumers from running out and taking cash advances on the eve of a bankruptcy filing.
 
Even if a recent cash advance is presumed to be non-dischargeable because of the above provision, the credit card bank must still file objections in the bankruptcy court in the form of an adversary proceeding [2].  Such proceedings are rare.
 
If you are considering filing for bankruptcy it is important to tell your bankruptcy attorney about any recent large cash advances to make sure that the petition is not filed too soon.
 
The dollar amount of the cash advance, as set forth in Bankruptcy Code section 523(a)(2)(C)(i)(II) changes every three years.  It is scheduled to change again in April 2013 and will probably increase about $50.
 
 
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