Bankruptcy planning mistakes can land you in hot water. There is a common thread to most bankruptcy planning mistakes. People often make bankruptcy planning mistakes because they think they can gain an advantage they weren’t supposed to have. For example, charge the cost of an expensive wedding and then file bankruptcy after you get the bill. (We have had several cases where people did this.)
Clients often ask if they can protect their car if they put it in someone else’s name. However, transferring assets does NOT protect them. People often transfer asserts that were never at risk in the first place. But such asset transfers may put you at risk for denial of your bankruptcy discharge. And, transferred assets can not be exempted. See how exemptions can protect your assets in a bankruptcy case.
Another of the bankruptcy planning mistakes people are tempted by is using up all their remaining credit. See how to find a great bankruptcy lawyer and save money on lawyer fees.
Here’s the problem. There are very sharp teeth in the bankruptcy law. Those provisions may punish people who rack up debts on the eve of filing bankruptcy. It’s common sense that charging up debts you don’t intend to pay is no different than robbing a gas station. The legal term is “fraud.”
The bankruptcy punishments may range from the mild—such as simply ordering you to pay back all the money you just charged up—to the severe—such as the outright denial of your entire bankruptcy case.
A creditor who has been ripped off in this manner can ask your judge to deny that debt from your bankruptcy discharge. The courts eagerly apply the fraud rule to support a decision that the debt is not discharged in your bankruptcy case—in effect ordering you to pay it all back.
Such a decision may brand you as a crook and hurt you in the future. State licensing boards can look on it as “moral turpitude” to deny you a professional license that requires you to prove personal honesty—including real estate sales, insurance sales, law license, stock broker, and contractor’s license.
Another punishment, even more severe, can be the outright dismissal (denial) of your entire bankruptcy case. Bankruptcy Code Section 707 says that the judge should dismiss a bankruptcy case if it would be an abuse of the law to let you have the protection of bankruptcy (relief from all your debts). A chapter 7 case filed by a person with primarily consumer debts may be dismissed (or converted to a Chapter 13 case with the consent of the debtor) in a situation where the court finds that the granting of relief under chapter 7 would be an abuse of the Chapter 7 law.
Abuse of the Chapter 7 law has been found by the courts in cases where someone has run up their debts deliberately. In fact, even if the debt “run up” happened a long time before the bankruptcy, there are numerous cases where the courts have reached back in time to find abusive conduct that justifies dismissal. A prime example of this is where the debtor has deliberately run up debts far beyond what his or her income at that time would ever have allowed for repayment.
Even if “you” believe you can repay the debts when you incur them, you could still be punished in bankruptcy if that belief was “unreasonable”. Let’s say, for instance, you run up a big debt on a gambling spree and you actually believe you are going to beat the casino and win enough money to repay all of the debt. Many courts have ruled such a belief is “unreasonable” and your conduct may be evidence that the granting of a bankruptcy discharge to erase those debts would be an abuse of the law. Caveat—if you run up debts to finance a gambling spree, you better win! But don’t expect the bankruptcy court to give you a break.
Over the years, we have represented many people who ran up their credit cards on gambling or doing other stupid things to squander money. An effective technique we have use at my Los Angeles bankruptcy law firm is to recommend a Chapter 13 bankruptcy case. In Chapter 13 the debtor proposes a court plan to use future income to repay part of the debt and to discharge part of the debt. Learn more about Chapter 13.
THE SOLUTION: Avoid Bankruptcy Planning Mistakes
Do not take bankruptcy advice from anyone but an experienced bankruptcy attorney. Do not make any changes in your financial structure before you get expert bankruptcy advice.
Learn your legal rights with a Board Certified Bankruptcy Specialist.
The Board Certified Bankruptcy Specialists at Bayer Wishman & Leotta will give you a completely free consultation. Call 800-477-3111.