I am planning on filing chapter 7 bankruptcy, however I'm…

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There is no bright-line test what is a luxury good. But if you purchase items on credit knowing that you won’t pay the bill, it’s considered fraud. Debts obtained through fraud are not dischargeable in bankruptcy.

When these purchases aren’t for luxury items or were made more than 90 days before the bankruptcy filing, the creditor has to prove to the court that the purchaser didn’t intend to pay at the time the purchase was made. This is an onerous burden of proof because the creditor has to show subjective intent and not just an inability to pay. In other words, it is not enough to show that you used your credit card during bad financial times or that it was unlikely that you would be able to pay. The creditor has to prove to the court that you never intended to pay.

Even so, the inability to pay is considered a hallmark of fraud. When coupled with other evidence, such as meeting with a bankruptcy attorney, a case can build fast.

However, when the purchases are for luxury items, and the charge occurred within 90 days before filing for bankruptcy, the law presumes that you made these charges fraudulently. It is much harder to discharge these types of debts. The same holds for cash advances taken within 70 days of a bankruptcy filing.

In bankruptcy law, luxury items are any goods or services that aren’t reasonably necessary for the support or maintenance of the debtor or the dependent of the debtor. Past court decisions provide some guidance as to what constitutes a luxury item—but you can’t rely on these entirely because each case is different. Generally, any extravagant, indulgent or nonessential purchase is considered a luxury.

Courts may also look to the circumstances surrounding the purchase to determine if something is a luxury item. The court examines the evidence to see whether the debtors made the purchase with some degree of financial responsibility. Purchases may show financial irresponsibility if the amount spent or the number of items purchased is excessive even though the items generally fall into the reasonable and necessary category. Medical services are a good example. It’s unlikely an emergency appendectomy would be considered a luxury purchase. In contrast, it would be difficult to think of cosmetic botox injections as anything but a luxury item.

Examples of luxury purchases. Items that some courts have found to be luxury items include vacation expenses, designer or excessive clothing purchases, expensive cosmetics, a brand new vehicle where the debtor had multiple vehicles, furnishings, and household goods to beautify and update the home, jewelry, cologne, coffee maker, a three-wheeled recreational vehicle, magazine subscriptions, sporting goods, a computer, candy, oriental rugs, and a camera.

Examples of non-luxury purchases. Items that some courts have found not to be luxury items include legal fees for a divorce proceeding, a moderately priced second automobile for a working spouse, clothing, shoes, cosmetics, gas, groceries, moderately priced furniture to replace broken furniture, and an inexpensive china set.

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