Most of the time, the bankruptcy court gives you the benefit of the doubt: absent evidence to the contrary, it's assumed that when you incurred your debts that you intended to pay them back off. You didn't go into them knowing you were going to file for bankruptcy. However, if you violate certain rules, that benefit of the doubt evaporates and you can be charged with the presumption of fraud—which will leave you stuck with debts even after your bankruptcy is over.

How do you avoid the presumption of fraud?

It isn't uncommon for people to rely on their charge cards in the months immediately prior to filing for bankruptcy, usually before they come to terms with the inevitable. However, if you charged "luxury goods or services" of more than $650 to any one creditor in the 90 days immediately before you file or took a cash advance of $925 or more in the last 70 days before you file, the court presumes that you acted with the full knowledge that you weren't going to be able to repay the debt.

Keep in mind that what the court considers to be a luxury and what you consider to be a luxury may be two different things. If you were charging groceries, the court will probably overlook that since food is a necessity. However, if you bought new clothes the court might consider that to be a luxury, expecting that you should have managed with what you already had.

Can you overcome the presumption of fraud?

You can overcome the presumption of fraud one of two ways. The first way relies mostly on luck because you can hope that the creditor doesn't complain to the bankruptcy trustee about the debt. If the creditor doesn't respond to the notice of your bankruptcy or attend the meeting of creditors, there's only a 90-day window in which they still have the option to object to the discharge of the debt. Some creditors won't pursue a small debt, but others can be quite aggressive.

The second is to prove to the satisfaction of the trustee that you really did intend to pay back the debt when you incurred it. You may have to answer a number of questions by the trustee in order to make your case:

• Were you employed at the time you made the charges (or did you think that you had a sure job prospect)?

• Were these normal purchases for you or did you suddenly change your habits?

• Had you already talked to a bankruptcy attorney before you made the charges?

• Why did you think you'd be able to repay the charges?

The best thing to do is move to a cash-only existence as much as possible prior to filing for bankruptcy and not to incur more debt. However, if you've already made a few mistakes, talk to a bankruptcy attorney like Donald T Tesch, PS about it to see if your unique situation can overcome the presumption of fraud.