Client Purchased Rolex Before BK? How Courts View “Fraudulent Intent” For Credit Card Fraud

I was reading some case law on fraudulent purchases prior to bankruptcy.  At first I thought it was only “luxury” purchases (i.e. you purchase a Rolex on eve of bankruptcy) but it turns out that “luxury purchase” is just one of many factors.  If you go to McDonald’s everyday and rack up a debt there, that can be nondischargeable.

I read Dougherty and HashemiConsider these factors when advising your client:

  1. Length of time between the when the charge was made and when bk was filed;
  2. Was a bk attorney consulted before the charges;
  3. Number of charges and amount;
  4. Financial condition of debtor at time of purchase;
  5. Was the charge over the credit limit;
  6. Was debtor employed;
  7. Debtor’s prospect of employment;
  8. Financial sophistication of debtor;
  9. Sudden change in buying behavior;
  10. Was it luxuries or necessities?

In Hashemi, the debtor made 170 charges totaling $60,000 during a 6-week trip to France with his entire family with a side trip to French Riviera, purchased cosmetics, expensive meals and luxury items.   These charges exceeded debtor’s annual income!  Without question, the panel affirmed the bk court’s finding that debtor “tried to have a last hurrah at American Express’s expense.”

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