With spring break just around the corner, many Georgia families are dreaming of beach trips, theme park adventures, or a relaxing cruise. But if you or your spouse is considering filing for bankruptcy, there's an important rule you need to know: do NOT charge your vacation on a credit card.
While there's nothing inherently wrong with taking a vacation before filing bankruptcy, how you pay for it matters tremendously. Putting a spring break trip on your credit card within 90 days of filing could turn what should be a dischargeable debt into one you'll still owe after your bankruptcy case is over.
The 90-Day Rule for Luxury Goods and Services
Section 523(a)(2) of the Bankruptcy Code creates a presumption that certain debts incurred shortly before bankruptcy are non-dischargeable. Specifically, the law states that consumer debts owed to a single creditor totaling more than $900 for "luxury goods or services" incurred within 90 days of filing bankruptcy are presumed to be non-dischargeable.
What qualifies as a luxury good or service? While the Bankruptcy Code doesn't provide a specific definition, courts have generally interpreted this to include anything that isn't reasonably necessary for the support or maintenance of the debtor or their dependents. A spring break vacation to Florida, a cruise to the Caribbean, or a trip to a theme park would almost certainly fall into this category.
What Does "Non-Dischargeable" Mean for You?
When a debt is deemed non-dischargeable, it means that debt survives your bankruptcy. Even after you receive your Chapter 7 discharge or complete your Chapter 13 plan, you will still owe that money to the credit card company.
Here's how it typically plays out:
- You charge a $2,500 spring break trip on your credit card in March
- You file Chapter 7 bankruptcy in May (within 90 days)
- The credit card company files a complaint objecting to the discharge of that specific debt
- You must either pay the debt or defend yourself in an adversary proceeding (essentially a lawsuit within your bankruptcy case)
Even if you ultimately win the adversary proceeding, most bankruptcy attorneys don't include litigation representation in their flat-rate bankruptcy fee. You'll end up spending additional money on legal fees regardless of the outcome.
Can I Just Pay Off the Vacation Before Filing?
You might think the solution is simple: charge the vacation, then pay it off before filing bankruptcy. Unfortunately, this approach creates its own set of problems.
If you pay a significant amount to a single creditor within 90 days of filing bankruptcy, the bankruptcy trustee may view this as a "preferential transfer." The trustee has the power to sue that creditor to recover the payment, which would then be distributed among all your creditors. In some cases, the credit card company that received your payment could then turn around and pursue you for the amount the trustee clawed back.
What About Cash Advances?
The rules are even stricter for cash advances. Under the Bankruptcy Code, cash advances totaling more than $1,250 from a consumer credit account obtained within 70 days of filing bankruptcy are also presumed non-dischargeable. So using a cash advance to pay for your vacation—or to get cash while on vacation—can create the same problems.
Smart Alternatives for Your Spring Break Plans
If you're planning to file bankruptcy but still want to take a family vacation, here are some options to consider:
- Save cash for the trip: If you can afford to pay for the vacation in cash without affecting your ability to pay essential bills, this is the safest approach
- Have the non-filing spouse pay: If only one spouse is filing bankruptcy, the other spouse can charge the vacation on their own credit card without the same concerns (though this should be discussed with your attorney)
- Delay the vacation: Consider postponing your trip until after your bankruptcy is filed and your financial fresh start is secure
- Plan a more modest trip: A staycation or day trips can still create family memories without the financial risk
The Bottom Line
We understand that families need time together, and spring break can be an important tradition. But charging a vacation within 90 days of filing bankruptcy can complicate your case, cost you additional legal fees, and potentially leave you still owing the debt after your bankruptcy is complete.
Our best advice: stop all credit card usage at least 90 days before you plan to file bankruptcy, and especially avoid any purchases that could be considered luxury goods or services. When in doubt, consult with a bankruptcy attorney before making any significant purchases.
If you're considering bankruptcy and have questions about how your recent spending might affect your case, contact our office for a consultation. We can help you understand your options and develop a strategy that protects your fresh start.
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