Beware increased debt load six months prior to bankruptcy

Significant increases in credit card debt within six months of a bankruptcy filing is often treated as a red flag by the bankruptcy trustees who are charged with policing the system. That does not mean that you cannot use a credit card for six months before you file. It means that large charges or a substantial increase in credit within the prior six months could draw scrutiny.

In a perfect world, trustees would be able to sort out acceptable reasons for the increased debt from fraudulent ones. People who after they see bankruptcy as a good option intentionally run up credit cards to buy things they want but do not need are trying to take advantage of their creditors and the bankruptcy system; there is no problem with trustees coming down hard of this type of debtor abuse.

On the other hand there are folks who file bankruptcy reluctantly after a financial setback such as a job loss, pay decrease, or unexpected large debt. These people will use credit cards to buy necessities because they hope that their fortunes will improve and they can avoid bankruptcy. These individuals should not be penalized for increasing debts.

But even those with acceptable motives are taking a risk when they borrow in order to buy time to work out of their financial situation. If they are unable to increase income, or decrease expenses, these well-intentioned debtors may still have recent debts challenged in Chapter 7 bankruptcy.

In order to avoid problems at the meeting of creditors, advance planning with a bankruptcy lawyer is important. If you are in the Merrimack Valley and are looking for bankruptcy assistance with credit card or other debts, feel free to give me a call.

 

By Doug Beaton

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