Can an unsecured loan be considered a necessity of life regardless of how it was spent?

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Can an unsecured loan be considered a necessity of life regardless of how it was spent?

I have filed a claim of exemption for a wage garnishment. The creditor is opposing it and states that the monies loaned were used for necessities of life. First of all, they can not possibly know what /how I used the money, so to make this statement seems false and inaccurate. The fact is the loan was used for debt consolidation. Aren’t they being to specific in their opposition reason anyway? The debt is owed for an unsecured term loan, which is not a necessity of life. Am I correct in using this as my argument?

Asked on May 2, 2011 under Bankruptcy Law, California

Answers:

SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 10 years ago | Contributor

The statement may prove to be inaccurate, but it is not "false" in the sense of being legally objectionable. The creditor can't *know* exactly what you spent the money on, that's true; however, one of the purposes of the legal system is to give plaintiffs and creditors the opportunity, through legal mechanisms (like "discovery") to find out what a defendant or debtor did with money. So as long as the creditor is advancing a good faith argument, they can put it forward; they will then have the chance to find the evidence they need to prove it, just as you can try to disprove their case and/or advance your own defenses. As to whether the argument is factually correct, that depends on the circumstances. For example, consider a simplified budget: you spend $1,200 a month on debt (interest, etc.) and $1,300 a month on the necessities. By using the loan to consolidate other debt, you lower your montly payments to $1,000 and have an extra $200 available for clothing, food, gas, etc. In that case, even though you did not directly spend the loan proceeds on the necessities, it could be said that the loan still enabled you to spend more on the necessities. The facts are what will determine if there is validity to the creditor's position.


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