Sometimes people get so far in debt that they can\’t see any way out, except maybe to declare bankruptcy. What absolutely horrifies us to hear though is the advice people get from friends like, \”You\’re bankrupt so why not enjoy yourself a little while you still have your credit cards and cash??\”
What these \”friends\” are basically telling you is that even though you are now financially ruined because of your poor spending habits that it\’s a good idea to go and spend even more money on things you don\’t need, running up even more debt leaving you with more money to repay to creditors as part of your bankruptcy filing. That\’s the worst advice in the world! Even worse are the people we\’ve seen who go and take out \”payday\” and \”cash advance\” loans to gift to their friends just as they\’re about to declare bankruptcy.
Why would any sane person do this?
Well it\’s because far too many people believe that declaring bankruptcy is like waving a magic wand over your debt and it all just magically disappears. Now while bankruptcy is a useful, and often essential, financial tool for people to sort out their lives it is by no means a magic wand – your debt is yours, now and forever.
It\’s also worth remembering that bankruptcy courts have seen people pull stunts like this over the years, so they\’re aware that it happens which means you won\’t be able to just lie your way out of it. So when it comes to deciding which of your debts they\’re going to discharge, and which ones you\’ll have to pay out on you can be sure that the items from your shopping spree are going to be at the top of the list of debts which aren\’t discharged under any circumstances.
When an individual files for Bankruptcy all the Creditor have to be listed and are therefore notified of the Bankruptcy Filing. The creditors have a history of all the transactions that have taken place. Purchase of luxury goods prior to filing for bankruptcy or excessive usage of credit cards within a year of filing for bankruptcy will give rise of suspicion of fraud. The Creditor or the trustee may raise an objection. The trustee may move to Dismiss the Creditors Bankruptcy petition and the Creditor may file an adversary Complain challenging the discharge ability of a specific debt. Maximizing once credit cards right before filing for bankruptcy or purchasing luxury goods is a very bad idea and may jeopardize your bankruptcy filing.
You should also bear in mind that if you create a line of credit (loan, credit card purchase, etc) which you knew that you could never hope to repay that\’s not only silly but it also counts as an act of fraud. Some people think they can get around the issue of fraudulently taking out loans by giving the cash or other valuable items to their family or friends, but unfortunately the courts are wise to this trick too, leaving you with even more explaining to do.
Declaring bankruptcy is a legal tool for helping your rebuilding your life. Being convicted of fraud is an entirely different matter however.