Monthly Archives: June 2018

Can I charge up my credit cards right before I go bankrupt?

Yes, but it’s a really bad idea.

Short Answer:  Your case could be dismissed for bad faith.  Or, that creditor may sue you for nondischargeability (meaning that you still have to pay that debt back plus attorney’s fees and interest).

Remember to avoid cash advances within 70 days of bk and charges of more than $500 in the 90 days before bk for luxury items.  

Long Answer:  It can hurt you.

I filed bankruptcy for a client last year who charged up over $10,000 in credit card charges on one card in the 2 months before we filed bankruptcy.  I didn’t know about it and had even asked him about recent purchases.  I am betting that he hoped that no one would notice.

It should have been a fairly simple case, but then I received the creditor’s lawsuit, called an adversary proceeding.  Officially, it was titled a “Complaint Seeking Exception to Discharge Pursuant to 11 USC s 532(a)(2)A) and/or 523(a)(2)(C) and/or 523 (a)(1) and/or 523 (a)(14A).”  A big, scary bankruptcy court lawsuit.  I have put in the code sections below.

Basically, my client had used his credit card to pay off about $1,500 in property taxes and spent the rest on lots of toys for his family.

I fought the lawsuit, and we settled for about $6,000, which is much, much better than it could have been.

Do NOT do the following:

Pay off taxes with your credit cards

Lie (fraud) on a credit application

Charge up more than $500 on a card within 90 days of filing bk  (this only applies to luxury items)

Take out cash advances of more than $750 within 70 days of filing bk.

Any of these items can lead a creditor to sue you in bankruptcy court.  You will most likely lose that suit and have to pay the monies back.

 

 

Here are some of those code sections (bolded):

(a) A discharge under section 727, 1141, 1228(a), 1228(b), or 1328(b) of this title does not discharge an individual debtor from any debt
(1) for a tax or a customs duty—
(A) of the kind and for the periods specified in section 507(a)(3) or 507(a)(8) of this title, whether or not a claim for such tax was filed or allowed;
(B) with respect to which a return, or equivalent report or notice, if required—
(i) was not filed or given; or
(ii) was filed or given after the date on which such return, report, or notice was last due, under applicable law or under any extension, and after two years before the date of the filing of the petition; or
(C) with respect to which the debtor made a fraudulent return or willfully attempted in any manner to evade or defeat such tax;
(2) for money, property, services, or an extension, renewal, or refinancing of credit, to the extent obtained by—
(A) false pretenses, a false representation, or actual fraud, other than a statement respecting the debtor’s or an insider’s financial condition;
(B) use of a statement in writing—
(i) that is materially false;
(ii) respecting the debtor’s or an insider’s financial condition;
(iii) on which the creditor to whom the debtor is liable for such money, property, services, or credit reasonably relied; and
(iv) that the debtor caused to be made or published with intent to deceive; or
(C)
(i) for purposes of subparagraph (A)—
(I) consumer debts owed to a single creditor and aggregating more than $500 for luxury goods or services incurred by an individual debtor on or within 90 days before the order for relief under this title are presumed to be nondischargeable; and
(II) cash advances aggregating more than $750 that are extensions of consumer credit under an open end credit plan obtained by an individual debtor on or within 70 days before the order for relief under this title, are presumed to be nondischargeable; and
(ii) for purposes of this subparagraph—
(I) the terms “consumer”, “credit”, and “open end credit plan” have the same meanings as in section 103 of the Truth in Lending Act; and
(II) the term “luxury goods or services” does not include goods or services reasonably necessary for the support or maintenance of the debtor or a dependent of the debtor;
(3) neither listed nor scheduled under section 521(a)(1) of this title, with the name, if known to the debtor, of the creditor to whom such debt is owed, in time to permit—
(A) if such debt is not of a kind specified in paragraph (2), (4), or (6) of this subsection, timely filing of a proof of claim, unless such creditor had notice or actual knowledge of the case in time for such timely filing; or
(B) if such debt is of a kind specified in paragraph (2), (4), or (6) of this subsection, timely filing of a proof of claim and timely request for a determination of dis­chargeability of such debt under one of such paragraphs, unless such creditor had notice or actual knowledge of the case in time for such timely filing and request;
(4) for fraud or defalcation while acting in a fiduciary capacity, embezzlement, or larceny;
(5) for a domestic support obligation;
(6) for willful and malicious injury by the debtor to another entity or to the property of another entity;
(7) to the extent such debt is for a fine, penalty, or forfeiture payable to and for the benefit of a governmental unit, and is not compensation for actual pecuniary loss, other than a tax penalty—
(A) relating to a tax of a kind not specified in paragraph (1) of this subsection; or
(B) imposed with respect to a transaction or event that occurred before three years before the date of the filing of the petition;
(8) unless excepting such debt from discharge under this paragraph would impose an undue hardship on the debtor and the debtor’s dependents, for—
(A)
(i) an educational benefit overpayment or loan made, insured, or guaranteed by a governmental unit, or made under any program funded in whole or in part by a governmental unit or nonprofit institution; or
(ii) an obligation to repay funds received as an educational benefit, scholarship, or stipend; or
(B) any other educational loan that is a qualified education loan, as defined in section 221(d)(1) of the Internal Revenue Code of 1986, incurred by a debtor who is an individual;
(9) for death or personal injury caused by the debtor’s operation of a motor vehicle, vessel, or aircraft if such operation was unlawful because the debtor was intoxicated from using alcohol, a drug, or another substance;
(10) that was or could have been listed or scheduled by the debtor in a prior case concerning the debtor under this title or under the Bankruptcy Act in which the debtor waived discharge, or was denied a discharge under section 727(a)(2), (3), (4), (5), (6), or (7) of this title, or under section 14c(1), (2), (3), (4), (6), or (7) of such Act;
(11) provided in any final judgment, unreviewable order, or consent order or decree entered in any court of the United States or of any State, issued by a Federal depository institutions regulatory agency, or contained in any settlement agreement entered into by the debtor, arising from any act of fraud or defalcation while acting in a fiduciary capacity committed with respect to any depository institution or insured credit union;
(12) for malicious or reckless failure to fulfill any commitment by the debtor to a Federal depository institutions regulatory agency to maintain the capital of an insured depository institution, except that this paragraph shall not extend any such commitment which would otherwise be terminated due to any act of such agency;
(13) for any payment of an order of restitution issued under title 18, United States Code;
(14) incurred to pay a tax to the United States that would be nondischargeable pursuant to paragraph (1);
(14A) incurred to pay a tax to a governmental unit, other than the United States, that would be nondischargeable under paragraph (1);

(14B) incurred to pay fines or penalties imposed under Federal election law;

(15) to a spouse, former spouse, or child of the debtor and not of the kind described in paragraph (5) that is incurred by the debtor in the course of a divorce or separation or in connection with a separation agreement, divorce decree or other order of a court of record, or a determination made in accordance with State or territorial law by a governmental unit;
(16) for a fee or assessment that becomes due and payable after the order for relief to a membership association with respect to the debtor’s interest in a unit that has condominium ownership, in a share of a cooperative corporation, or a lot in a homeowners association, for as long as the debtor or the trustee has a legal, equitable, or possessory ownership interest in such unit, such corporation, or such lot, but nothing in this paragraph shall except from discharge the debt of a debtor for a membership association fee or assessment for a period arising before entry of the order for relief in a pending or subsequent bankruptcy case;
(17) for a fee imposed on a prisoner by any court for the filing of a case, motion, complaint, or appeal, or for other costs and expenses assessed with respect to such filing, regardless of an assertion of poverty by the debtor under subsection (b) or (f)(2) of section 1915 of title 28 (or a similar non-Federal law), or the debtor’s status as a prisoner, as defined in section 1915(h) of title 28 (or a similar non-Federal law);
(18) owed to a pension, profit-sharing, stock bonus, or other plan established under section 401, 403, 408, 408A, 414, 457, or 501(c) of the Internal Revenue Code of 1986, under—
(A) a loan permitted under section 408(b)(1) of the Employee Retirement Income Security Act of 1974, or subject to section 72(p) of the Internal Revenue Code of 1986; or
(B) a loan from a thrift savings plan permitted under subchapter III of chapter 84 of title 5, that satisfies the requirements of section 8433(g) of such title;
but nothing in this paragraph may be construed to provide that any loan made under a governmental plan under section 414(d), or a contract or account under section 403(b), of the Internal Revenue Code of 1986 constitutes a claim or a debt under this title; or
(19) that—
(A) is for—
(i) the violation of any of the Federal securities laws (as that term is defined in section 3(a)(47) of the Securities Exchange Act of 1934), any of the State securities laws, or any regulation or order issued under such Federal or State securities laws; or
(ii) common law fraud, deceit, or manipulation in connection with the purchase or sale of any security; and
(B) results, before, on, or after the date on which the petition was filed, from—
(i) any judgment, order, consent order, or decree entered in any Federal or State judicial or administrative proceeding;
(ii) any settlement agreement entered into by the debtor; or
(iii) any court or administrative order for any damages, fine, penalty, citation, restitutionary payment, disgorgement payment, attorney fee, cost, or other payment owed by the debtor.

Here is a 4 year old blog post on the same topic:  https://robertspaynelaw.com/myutahbankruptcyblog/2014/12/22/if-i-use-my-credit-card-right-before-i-file-bankruptcy-can-they-object-and-throw-it-out/

Will bankruptcy wipe out my car loan and let me keep my car?

No.

In bankruptcy, if you want to keep your financed vehicle, then you need to keep paying for it.  Bankruptcy will not wipe out (discharge) the loan amount and allow you to keep the vehicle free and clear.

Yesterday afternoon I received a call from a potential client who wanted to file bankruptcy on her $36,000 truck loan because the payments were over $600 a month.  I said that we could definitely do that.  She then asked when they would send her the title.  At that point, I realized that we had a problem with the concept of bankruptcy and secured debt.  

In most cases, bankruptcy (especially Chapter 7) will wipe out almost all of your debts, with the exception of certain priority debts like taxes, student loans, child support/alimony, and criminal restitution.  However, some people want to keep their secured debts.  A secured debt is a debt that you owe that is secured by a thing:  a mortgage is secured by a home, a car loan is secured by a car (plus they hold your title as a lienholder) , and your kirby vacuum is secured by a financing agreement filed with the state.

If you want to keep your thing secured by a secured debt, then you need to keep paying on that debt.  So if my potential client wants to keep her truck, then she needs to keep the $36,000 loan attached to it.  She cannot file a bk and then receive title to a $36,000 truck for free.  If she wants that title, then she needs to eventually pay off the secured loan.

To be clear, bankruptcy can wipe out your personal liability on those debts, but the secured debts are still attached to the stuff (collateral) you financed.  You cannot wipe out a secured debt and just walk away with a clean car title or even get rid of your entire mortgage.