How Cash Advances from Credit Cards Are Treated in Bankruptcy

Knoxville lawyer advises on situations that might raise a red flag

Each person’s financial situation is unique, but many people struggling with debt follow a similar path before choosing to file for bankruptcy protection. Individuals frequently take cash advances from their credit card to meet their immediate needs while hoping for things to improve. However, if you’re considering this, you should be aware of the specific rules that can prevent these types of debts from being discharged in a Chapter 7 bankruptcy. Drawing on more than 25 years of legal experience, I work with East Tennessee clients facing serious debt problems at my Knoxville firm, William E. Maddox, Jr. LLC, Attorney at Law. Even if you are not sure about whether you are going to file for bankruptcy, my firm can help you make smart choices regarding cash advances and other important financial matters.

Factors that affect whether a cash advice will be discharged under Chapter 7

It’s easy to understand why someone would take a cash advance from their credit card when times are tough. Though the interest rates are usually very high, you can get this money quickly and without having to go through an extended approval process. There is, however, a potential for abuse if someone receives money while intending to discharge their obligation to repay that debt in an upcoming bankruptcy. This is why the Bankruptcy Code holds recipients of these payments accountable when certain circumstances exist. If you’re considering an advance, you should understand the rules regarding:

• Timeframe — The look-back period for cash advances runs for 70 days prior to the bankruptcy filing. Transactions that occur within that timeframe can be excluded from any debt discharge. This might compel you to delay your filing or seek bankruptcy protection before you obtain the advance. A similar provision also applies to non-essential purchases made with a credit card within 90 days of the bankruptcy filing.
• Amount — Debts for cash advances made within the 70-day timeframe are presumed to be non-dischargeable if the total amount of the advances is at least $1,000. Non-essential purchases are presumed to be fraudulent if they exceed $725. Even if you made these transactions with the intention of paying the money back, you should be aware that they raise a “red flag” during bankruptcy proceedings.
• Adversary proceeding — While certain cash advance debts are presumed to be non-dischargeable, the credit-card company must initiate an adversary proceeding if it wishes to pursue the debt outside of the bankruptcy process. In many cases, the financial institution might not choose to challenge the filing due to the time and expense involved. If the company does seek to recover the cash advance, you have the opportunity to demonstrate that you were not engaging in fraud when you made the transaction.

Don’t get caught by surprise after you have started your Chapter 7 bankruptcy proceeding. My firm helps you anticipate what will happen to your cash advance debt and other obligations.

Contact a seasoned East Tennessee bankruptcy lawyer for a free consultation

William E. Maddox, Jr. LLC, Attorney at Law in Knoxville advises East Tennessee clients on a wide array of bankruptcy and debt relief matters, including the treatment of cash advances and credit-card debt. To make an appointment for a free initial consultation, please call 865-293-4953 or contact me online.