Over the years, I’ve had dozens of clients sit in front of me and ask if they could “go out with a bang” before filing bankruptcy.
As a lawyer who’s been around the block a few times it’s crystal clear to me that these last hurrahs are a terrible idea.
The frequency of the questions from incredibly smart, ethical and honest people indicates that it’s less clear than I used to think.
In fact, the problem arises from three areas: the discharge of recent credit card debt; keeping luxury items; and hanging onto your cash reserves.
The Problem Of Discharging Recent Debt
Under 11 USC §523(a)(2), recent charges (those incurred within 90 days before filing bankruptcy) can’t be discharged if the debt is for more than $500 and for luxury goods or services. Cash advances aggregating more than $750 incurred on or within 70 days of filing bankruptcy may also be excepted from your discharge.
If you’re planning to get into court right after a whirlwind tour, you need to know the creditor may object to your discharge. That would impact only the debt incurred to that particular creditor (not the denial of the entire case). Still, it’s a big risk to take when recent charges are high.
You Can’t Always Keep Luxury Items
Some years ago, one of my clients bought a big-screen TV. This was in the days when such items cost thousands of dollars. The value declined quickly once purchased, but this particular client plunked down his money within days of coming to see me for his bankruptcy filing.
I, of course, made him return the television. It was so outside his means as to be absurd, but there was one more reason. He would have lost it in his Chapter 7 bankruptcy case.
Each jurisdiction has certain exemptions – lists and values of things you get to keep when filing bankruptcy. My client’s purchase tipped the scales so far over as to nearly capsize his case. Had he filed for Chapter 7 before returning the television set, the trustee would have likely seized it.
You Should Hang On Your Cash
You’re filing for bankruptcy, so chances are good that you’re not exactly flush with cash. Why spend it all when you could hang onto it for a rainy day?
We mentioned exemptions already. There’s one for cash and money in the bank. If you keep the cash, you may be able to protect it.
Keep Your Wits About You
If you’re thinking about filing bankruptcy, you’re in a financial hole already. Stop digging yourself even deeper. Stop using the cards and try living within your means. You’re going to need to do it after bankruptcy anyway, so no better time than the present.
Don’t transfer balances around, don’t go on a whirlwind vacation, and please don’t hit the ATM with your cards. You’ll make your bankruptcy case simpler if you follow these simple rules, and make your life so much better.
Image credit: Steve Rhode