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Curb holiday spending to prevent financial hangover

The holiday season is the time of year where people start maxing out their credit cards. In this bad economy, most budgets are already stretched too thin and putting presents on plastic could mean a sobering wakeup call for many when the post-holiday bills start to arrive come January.

Don’t be fooled into thinking you can max out those cards and then turn around and file bankruptcy to get rid of the obligations. Congress provided for such thinking in the bankruptcy code.

Section 523(a)(2) exempts from discharge, any debt that was obtained if an individual made material and false representations about his financial condition. Section 523(a)(2)(C) provides that:

1. consumer debts owed to a single creditor and aggregating more than $500 for luxury goods or services (luxury goods defined as goods or services reasonably not necessary for the support or maintenance of the debtor or a dependent of the debtor) incurred by an individual debtor on or within 90 days before the order for relief under this title are presumed to be non-dischargeable; and

2. cash advances aggregating more than $750 that are extensions of consumer credit under an open end credit plan obtained by an individual debtor on or within 70 days before the order for relief under this title, are presumed to be non-dischargeable;

Section 523(a)(2)(a) excepts from discharge money, property or services incurred by false pretenses, a false representation, or actual fraud (i.e. incurring debt that you knew or should have known that you would not be able to repay).

This means that those holiday charges will be presumed non-dischargeable until at least April. During that time, if you are unable to make your minimum payments on time you will likely fall victim to a rate increase. Sometimes rates will spike as high as 30% APR.

So do yourself a favor and be smart about holiday spending. Put away the credit cards and use your debit card instead or just carry cash. That way you can more easily limit your spending.

However, if you do find yourself drowning in debt, for whatever reason, make sure to talk with an experienced bankruptcy attorney to determine your options.

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