Be Careful Taking on New Debt if You Intend to File for Bankruptcy
When our clients decide to file for bankruptcy, we need to discuss how they should handle taking on new debt. Life does not stand still, and people often need to tap their credit in the weeks leading up to a bankruptcy filing. However, taking on new debt could create problems, and some debts might not get discharged.
At Nowack & Olson, PLLC our Plantation bankruptcy lawyers strive to take the confusion out of the bankruptcy process. Please contact us for more information if you are considering filing.
Taking on New Credit Card Debt
This is typically the most common form of new debt that people take on in the weeks leading up to their bankruptcy filing. People use credit cards for all kinds of purchases, such as groceries and medical supplies, in addition to paying their utilities. They might add more debt to an existing account, or they could even open a new credit card and start making charges.
One problem is that your creditor could challenge your attempt to discharge the debt. Under the U.S. Bankruptcy Code, Section 523(a)(2), a debt is fraudulent if a person incurs it without any intent to repay or any ability to do so.
Risk with Consolidation
One strategy for managing debt is to consolidate credit card balances onto a new card, often at a very low (or 0%) APR. However, you run the risk of being denied a discharge if the creditor challenges why you opened the new account.
Even worse, the debts you transferred might have qualified for discharge had you left them in their original accounts. By rolling them onto a new card so close to the filing date, you now cannot wipe them out. For this reason, you should not open any new credit cards without talking to your attorney first.
How to Use Credit in the Weeks Before a Bankruptcy
Everyone’s situation is different. Whether you should charge something on a credit card depends on the circumstances, but there are some general rules that we can discuss.
For example: cash advances. Any cash advance of over $1,000 is presumed fraudulent if taken within 70 days of filing for bankruptcy. (The amount increases every few years.) This does not mean the cash advance is automatically fraudulent. Specifically, your creditor will have to complain about it, and you always have the chance to present evidence that you intended to pay the advance back. But many creditors will challenge a cash advance, which creates more work if you hope to discharge the amount.
You also should avoid buying luxury goods or services. These are things other than necessities like food and medicine. Think electronics, vacations, jewelry, and cosmetics. Any luxury purchase totaling more than $725 within 90 days of filing is also considered presumptively fraudulent.
Speak with an Attorney
If you are considering filing for bankruptcy protection, you should meet with a Plantation bankruptcy lawyer at Nowack & Olson, PLLC today. We have helped more than 20,000 consumers get a fresh financial start, and we would be glad to take a look at your individual situation. Contact us to schedule a free consultation.