By the time many people contact a bankruptcy attorney, their credit card balances are already high – if not at their limit. Sometimes, when there is room to spare on the balance, it can be tempting to use credit if a bankruptcy filing is down the road. Here’s a bit of advice: don’t.
Let’s start with the practical view: if you know you will be filing bankruptcy in the future, then you know you will not pay back what you borrowed (or perhaps not all of it at the terms you agreed to). While understandably, you might think that the big bad bankers have it coming to them, it still does not change the fact that it is wrong to take money under the pretense of borrowing, when you know you have no intention of paying it back. And there are legal consequences as well.
Section 523 (a)(2) of the Bankruptcy Code precludes discharge of debts that were incurred by fraud. If the charge was incurred during a certain period of time prior to the bankruptcy filing, the debt may be presumed fraudulent. In other words, it’s up to the debtor to prove that it’s dischargeable. If a debt is incurred outside that presumptive period, a creditor may still challenge dischargeability if the facts warrant it. They will have the burden of proof, but the debtor will still need to defend his or her decisions. This is all done through an Adversary Proceeding. And there are consequences with that as well.
Adversary Proceedings are civil lawsuits within the bankruptcy case itself, and it is the procedural mechanism that creditors use to litigate dischargeability issues. They can be complex, long and in some cases, the end result is not all together predictable. It can delay the closure of the bankruptcy. I have seen it cause great consternation and anxiety with debtors. One debtor recently told me that she has not slept well since her Adversary Proceeding started. In addition to all that, the Adversary Proceeding adds to the costs of the case – sometimes substantially. All around, it’s not a good time.
If you see bankruptcy in the future, think twice before using that credit card. Think twice before asking for that personal loan. Think twice before accepting that preapproved offer of credit. Yes, the extra money might bring a temporary fix. However, if you find yourself in bankruptcy court, that decision could be costly. If you find yourself itching to use that credit card, and knowing you cannot pay it back, it’s time to talk to a bankruptcy attorney.
Storm Preparation is a weekly series appearing on Wednesdays and offers tips and information to people who think they may need bankruptcy protection in the future. Questions, comments or suggestions can be addressed to info@mcleodlawoffices.com.
