Those thinking about filing a chapter 7 bankruptcy in the near future might want to avoid taking certain actions. Declaring bankruptcy is all about letting the bankruptcy trustee take over your finances so that certain creditors take priority billing. In some cases, that can involve looking back over your transactions for the past few months. Before you file, you might want to review the below problem areas to ensure you won't run into problems with your bankruptcy. Read on to find out more.
Preferential Payments
When you "declare" that you are unable to pay your debts, you are also allowing the bankruptcy court to make decisions about who should be paid with any available funds. You might be wondering where those funds come from to pay creditors and, indeed, most filers have little to no assets that have not already been used up. In some cases, filers have liquid assets or property that can be seized and sold off.
In addition, the bankruptcy trustee will be scrutinizing your financial transactions for the past 90 days for signs of what is known as preferential payments. This is when the filer makes a large payment on a debt to one creditor in particular without good reason. For example, if you pay back a personal loan all at once, that might meet the standards for preferential payment. The trustee has the power to undo that transaction and recover those funds from the creditor or person.
Overuse of Credit
Some people purposefully take advantage of an upcoming bankruptcy filing by overusing their credit cards. It is possible to use your credit cards right up until the moment your federal filing hits the court, but care must be taken to avoid overdoing things. Take a look at these rules about credit card use in the 90 days before you file for chapter 7:
- Don't charge more than $675.00 on any one card for goods and services.
- Don't take out a cash advance of more than $925.00 from all cards combined.
It's worth noting that if you go over the above limits, you might not necessarily have the debts remain after your filing. It all depends on the reason why you used the card. Luxury purchases will likely cause the creditor in question or the bankruptcy trustee to raise an objection to the charges. If you needed the item and it was not a frivolous purchase, it can be discharged along with all your other debts. For example, a car repair, a needed large appliance, groceries or utility payments are considered reasonable and necessary.
If you have used your credit cards in the 90 days before you filed, speak to your consumer bankruptcy attorney about any possible complications at your creditor's meeting.
