70/90 rule sets limits on credit charges made by debtor prior to bankruptcy case
When individuals begin the bankruptcy process' they need to be particularly well acquainted with the rules governing their financial activities just prior to filing a petition with the U.S. Bankruptcy Court.
If they continue to use credit cards for non-essential purchases or take cash advances shortly before they file' those charges could be considered fraudulent. The prohibition of these actions is very specific within the bankruptcy code' and it's often referred to as the "70/90 rule."
According to section 523 of the code' the rule states that within 90 days before the filing' an individual may not charge more than $550 to a credit card for items that are considered non-essential' luxury goods or services. Charges made for essential items such as emergency car repairs are not usually considered a violation.
Further' within 70 days prior to the bankruptcy filing' no more than $825 may be taken out in cash advances' such as the use of credit card convenience checks' for any purpose.
If such expenses should occur' it will be reason enough for the bankruptcy court to presume fraud on the part of the debtor' and examine the individual's finances for as much as five years before the petition was filed. If the charges are deemed fraudulent' they will be omitted from the bankruptcy and the creditors will have to be paid those amounts.
In considering whether fraud has taken place' a bankruptcy judge may consider such conditions as the number of charges made and how close to the filing they took place' whether there were multiple charges made on the same day or if the charges were made above the credit limit of the account. Prior to the 70/90 period' the burden falls to creditors to prove that the individual knew that a bankruptcy filing was planned when credit purchases were made. Writing for AllExperts.com' Los Angeles attorney Leon Bayer warns debtors that claims of fraudulence can be attached to any credit charges made by the debtor' if a creditor is determined to stop them from being discharged in bankruptcy.
"It doesn't stop a creditor from seeking nondischargeability on charges that were made a lot earlier than that' where the evidence indicates there was use of credit under fraudulent circumstances'" he states. "Don't think that waiting 90 days puts you in the clear. The only difference is a shift on who has the burden of proof at trial."
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