Luxury Good or Service Debts in Bankruptcy
11 U.S.C. §523(a)(2)(C)(i)(I) states that consumer debts owed to a single creditor that total more than $600 for luxury goods and services incurred by an individual debtor within 90 days before filing are presumed to be nondischargeable. The policy underlying this section is to prevent debtors from loading up on debt before filing bankruptcy. However, the presumption is easily circumvented by waiting more than 90 days from the date the luxury goods or services were purchased to file for bankruptcy. Furthermore, the presumption can be rebutted by showing that the debt was not incurred in contemplation of bankruptcy such that there is a serious doubt in the mind of the court as to the debtor’s bad intent.
The term “luxury goods or services” is not defined in Section 101 of the bankruptcy code and Section 523 lends little more clarification other than to state that luxury goods or services do not include goods and services reasonably necessary for the support or maintenance of the debtor or the dependent of the debtor. Given the lack of clarity in the bankruptcy code, In re Shaw gave substance to the term in holding that “luxuries within the meaning of § 523(a)(2)(C), as a matter of law, are limited to things that constitute extravagances or self-indulgences.” Furthermore, the court rejected the Plaintiff’s argument that non-necessities automatically constitute luxuries within the meaning of § 523(a)(2)(C). Accordingly, certain goods or services may not be reasonably necessary for support but will also not be luxury goods or services. Hence, luxury goods or services are those goods or services that represent extravagances or self-indulgences.
Debts incurred by an individual primarily for personal, family, or household purposes owed to one creditor and totaling more than $600 for extravagances or self-indulgences purchased within 90 days before filing are presumed to be nondischargable in bankruptcy.