When you file for bankruptcy, certain things automatically become ineligible for discharge, one of which is debt over $675 that was incurred 90 days before filing bankruptcy to purchase luxury items. The problem is the bankruptcy court only defines luxury items as anything that's not necessary for your (or your family's) survival, support, or maintenance, which can leave a lot up to interpretation. Here's how to tell if a recent purchase you made may be exempt from the bankruptcy discharge.
Excessive and/or Non-Essential Items
The bankruptcy court looks at a variety of factors when determining whether something you purchased was luxury item, and at the top of the list is whether it was needed. For instance, the bankruptcy court is more likely declare a vehicle you purchased a luxury item if you already owned a car or truck at the time. However, a new vehicle may be deemed essential if your old car became irreparable due to an accident, and you couldn't get to work using other means of transportation.
Another thing the bankruptcy court will look at is how many items you purchased. Even items that would be considered essential to your support and maintenance may be classified as luxury purchases if you buy a lot of them. For example, groceries are generally considered essential items. However, if you charge $5,000 worth of food one month on your credit card without a good reason (e.g. natural disaster), the court may decide that transaction was a luxury purchase and you may be required to pay the credit card company back.
A third thing the court will also look at is the item's cost. For instance, the court may allow the debt associated with the purchase of a refrigerator to be written off if you bought a low-end model at a reasonable price. However, the judge may think twice about discharging the debt if you bought a high-end model that you wouldn't have been able to afford on your income.
Defenses to Luxury Purchases
There aren't many defenses you can use to justify an item that's been listed as a luxury purchase. You would essentially have to show the item was integral to the support and maintenance of yourself or your family. If the judge doesn't accept your explanation, then you need to be prepared to repay the money borrowed to buy the item.
For more information about this issue or help with a bankruptcy case, contact an attorney.