Don’t Charge Your Vacation Within 90 Days of Filing Bankruptcy

An American tradition is to take the family to the beach for Memorial Day weekend, but if you or your spouse is about to file bankruptcy, do NOT charge this vacation on your credit card.  Your credit card company will heavily scrutinize any charge made within 90 days of filing bankrupcy, so my typical advice is to not even use your credit cards within 90 days of filing; however, there is nothing inherently (or legally) wrong with living your life and supporting your BASIC needs on credit.  The problem comes from section 523 of the bankrupcy code, which provides that any amount owed to a single creditor over $600 for a luxury good or service within 90 days of filing is presumed to be nondischargeable.  Nondischargeable means that the debt will not be wiped out by your bankruptcy discharge.  It does not matter whether you are filing Chapter 7 bankrupcy or Chapter 13 bankruptcy, the amount you charge for a luxury vacation (or almost any heavy travel) will be determined nondischargeable
What If I Pay OFf the Credit Card?
Many people may think they are in the clear by simply paying off the amount charged for the vacation, but this payment, since it is likely going to be more than $600, could be viewed as a preferential transfer by the trustee.  If the trustee does attack this payment by suing your creditor for the amount received, the creditor can then sue you in bankruptcy court (called an adversary proceeding) for the amount taken by the trustee.  Often this will not happen, as the amount that the trustee could recover for the “preferential transfer” is not worth the cost of litigating with the credit card holder you attempted to pay off.
My Advice
If you really have to take a vacation right before filing, then you would have had to save for it or have the non-filing spouse charge it on his or her credit card.  While not my official advice, I understand some people do not want to give up a family tradition because one spouse has to file bankruptcy.