Do not use credit cards before filing bankruptcy

Unless you are facing a very serious medical or other emergency, it should be relatively easy for you to stop using your credit cards before filing bankruptcy. In fact, if you are seeking a fresh start, you should start getting used to living without debt. So, retire your credit cards. Don’t use them if you want bankruptcy relief!

When an individual uses credit cards or borrows money within 90 days before obtaining bankruptcy relief, there is a legal presumption that the borrowing was done with the intent to “defraud” the creditors. Under bankruptcy law, debts that were incurred "fraudulently" do not get discharged. This means that they do not get wiped out. Basically, this means that a consumer might get other debts wiped out, but will be stuck with the debts incurred 90 days before filing bankruptcy.

Of course, like most legal issues, there are complications, exceptions, and procedural considerations. If you have borrowed money recently, and need bankruptcy protection, or if you want to learn more about your rights, please contact us, and we will be happy to discuss this in a free, confidential consultation.

Do not give valuable gifts to anyone

There are several reasons why anyone who is even thinking about filing for bankruptcy should not give valuable gifts to anyone.

First, if the court finds that the gifts were made in order to hide assets, the debtor may be denied a discharge of all his debts. This denial of discharge is permanent. The debts that were listed in the bankruptcy will not even get wiped out if the debtor files another bankruptcy years later. Fortunately, this happens very infrequently. Usually, if the debtor is honest, and discloses all gifts in the bankruptcy petition, it is practically impossible for the court to find that the debtor was hiding assets.

But even if the court finds that that the gifts were not part of a scheme to hide assets, other problems may also arise. The chapter 7 trustee may go after those gifts, even if the gifts were made months, or even years before filing bankruptcy. If the trustee decides to go after the gifts, he will probably hire an attorney.  The attorney will probably first try to recover the gifts by sending letters to the person who received them. If this is unsuccessful, the attorney may file a lawsuit.

Whether the trustee will go after gifts is a complicated question. If you are concerned about gifts you have made, please contact us, and we will be happy to discuss the issue in a free initial consultation.

If you owe money to family or certain business associates, don’t pay them back!

Bankruptcy law treats debts to family members and business associates a little differently than debts to banks or other creditors. If you owe money to family members or business associates, and pay them back within one year prior to filing bankruptcy, then, under bankruptcy law, your family member or business associate may be forced to pay that money back, if you have filed a chapter 7. If you have filed a chapter 13, bankruptcy law may force you to pay more into your plan than you would have paid if you had not paid off your family member or business associate.

Basically, bankruptcy law may consider repayment of debts to family or business associates as a “preferential payment.”  If a repayment is considered a preferential payment, the chapter 7 trustee can ask the court to “set aside” that payment. This means that the family member or business associate would have to pay the money back, or risk having a lawsuit filed against him by the trustee. In a chapter 13, the trustee may force the debtor to correct the preferential payment by paying more money into the chapter 13 plan.