by Adam Mack, J.D.
Hillary Stirling, research assistant
Sometimes, when people are considering bankruptcy, they’ll borrow money (including taking cash advances on their credit cards) assuming that they’ll be able to discharge that debt in a bankruptcy.
WHAT COULD GO WRONG
The first problem with this course of action is a moral one – is it right to borrow money when your intention is to never pay it back? The second problem is that, depending on how recently you incur the debt, you might have to pay it back anyway.
The bankruptcy code allows trustees to examine all of your financial transactions for the three months previous to the date you file your petition. If, within the 70 days prior to filing, you take cash advances from your credit card with a combined total of more than $750, that debt cannot be discharged. Likewise, any combined debts to a single creditor that total more than $500 for luxury goods or services incurred in the 90 days prior to filing cannot be discharged. So if you take one payday loan for $200 every month for the three months leading up to filing bankruptcy, your total debt to the payday loan company cannot be discharged because it exceeds $500 in the last three months (probably depending on what the money was spent on).
And that’s just what the trustee can do. Your credit card company is free to review its own records and if it finds excessive charges or luxury items purchased in the six months to a year before you file bankruptcy, it can challenge you in court.
THE MOST IMPORTANT PART
Bankruptcy is a powerful tool that can help the honest debtor get a fresh start. If the court finds that a debtor is dishonest, however, that fresh start will probably never come – at least not for the debt in question. If you’re even considering bankruptcy, it’s in your best interest to talk to a qualified Kansas bankruptcy attorney to find out how to avoid accidentally breaking these and other rules surrounding the honesty of the debtor.
These articles are for general informational use and do not constitute legal advice. Since laws change over time, it’s possible some articles are out of date and for that reason, we make no representation that the articles are fully accurate. For actual, up-to-date legal advice (including a free consultation), please contact us!