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Avoid using credit cards before bankruptcy

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Using credit cards to buy holiday gifts could mean that you will have to pay back those credit charges if you file for bankruptcy. This is a possibility even if you intended to pay on the cards when you made those purchases.

The Bankruptcy Code has specific rules about the consequences of using credit to buy “luxury goods or services” during the months before a bankruptcy filing.  One rule is that if you use a credit card—or any other type of consumer credit—to buy more than $500 of consumer “luxury goods or services” through a single creditor within the 90 days before filing bankruptcy, a “presumption” is created that this debt is not dischargeable in bankruptcy.

Don’t let the word “luxury” deceive you – it is used to mean anything not “reasonably necessary” to support you or your dependents. Anything not used for survival is arguably not reasonably necessary. Even modest holiday gifts could be considered luxuries under this rule.

Another, similar rule applies to cash advances, except that the trigger dollar amount is $750 per creditor, and the period of time is within 70 days before filing bankruptcy, with the same presumption that the debt would not be dischargeable.

While it is true that such presumptions can be defeated, it is not likely in practice. This is because coming up with the evidence necessary to overcome the presumption (you’d have to prove that you intended to pay the money back at the time you borrowed it) is usually not easy. And the high cost of showing the evidence to the court during a separate proceeding normally makes trying to do so not worthwhile. The attorney fees it would cost you to fight the issue would likely be more than the original amount you’re fighting over.

The bottom line is that if  you use consumer credit exceeding these dollar limits this holiday season and then file bankruptcy within the applicable 70 and 90-day periods, you will most likely have to pay for whatever credit charges you incurred during those periods. You can avoid these presumptions by waiting to file the bankruptcy until after those time periods have passed, but that isn’t always possible due to pending wage garnishments or other types of judgment execution. And even if you do wait, the creditor can still try to show that you had a bad intention when you made these credit charges. It’s best to just avoid the problem altogether by not using your credit cards or other lines of credit when there’s even an outside chance that you might need to file for bankruptcy.

Got debt problems? Call (201) 676-0722.

Why Not Repay Relatives Before Filing Bankruptcy?

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Why not repay relatives before filing bankruptcy?

Why not repay relatives before filing bankruptcy? This post addresses a situation where you borrowed money from a relative before bankruptcy. Many people do this in an attempt to keep from having to file for bankruptcy. But often, the money borrowed from the relative isn’t enough to prevent the inevitable.

The general rule about repaying creditors before bankruptcy can be stated as follows: If, before you file a bankruptcy, you pay a creditor more than you are paying at that time to your other creditors, then that favored creditor may have to return the money so that it is shared among all your creditors.

This is especially true if you are paying one creditor when you are no longer paying anything to anyone else. The payment to your favored creditor is called a “preferential payment”—you are considered to be paying that creditor in “preference” over your other creditors.

Unfortunately, the good intentions you had in repaying a creditor may backfire, especially if that creditor – the person to whom you owed the money – is a family member. That’s because repaying a relative within the year before filing for bankruptcy can get that family member mixed up in your bankruptcy case. Your relative may have to fork over the money to your bankruptcy trustee—even if that money has already been spent.

The trustee may well sue your family member to get that money, which is something that bankruptcy law allows the trustee to do. And afterwards, assuming that you feel a moral or family obligation to make that person whole, you would be paying that debt a second time after your bankruptcy is done.

The good news is that this problem can be avoided if you get good legal advice before you make the “preferential” payment or series of payments to that favored creditor. Even if you’ve already made that payment or series of payments when you see your attorney for the first time, there are often ways to get around it.

Watch out – the law about preferences is complicated. Section 547 of the Bankruptcy Code, while by no means the most confusing one in the code, is still unclear. It’s about 1,318 words long, containing 56 sub-sections and sub-sub-sections. If you look at it, I think you’ll agree that this is NOT a do-it-yourself aspect of bankruptcy law.

So IF there is a chance that you will need to file a bankruptcy, BEFORE you pay anything to a relative or any other kind of special creditor that you feel duty-bound to pay, FIRST talk to an experienced bankruptcy attorney. Do so even if—in fact especially if–you don’t consider the person you’d like to pay a “real” creditor, because, for example, the debt was never put in writing, or nobody knows about it.

And most importantly, if you HAVE made such a payment before you see your attorney, be sure that you disclose this information to the attorney at the beginning of your first discussion. It may well affect the timing of your bankruptcy filing. Preferences are mostly a problem when they are discovered AFTER the bankruptcy is filed. That’s what you want to avoid most. Avoid that and it’s possible that preferences will not be a problem for you.

If you’re thinking about filing for bankruptcy in New Jersey, call Jennifer N. Weil, Esq. at (201) 676-0722.

Photo by kevin dooley.

I owe a debt and got sued . . . What now?!?!

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4004808621_835e1114cc_zTime is money – When you owe a debt and you get sued, a fast timer starts that you can’t afford to ignore. If you want to keep control over your own money, you need to act fast. That means you can’t afford to sit on your hands.

Here are the realities: #1: Most credit-card companies don’t sue very quickly. So if you’re being sued, it means you’re in pretty serious financial trouble. Most bad debts don’t stay with the credit-card companies, but are sold off to collection agencies at rock-bottom prices. The collection agency then hounds you to pay up. Since they paid so little for your debt, any money they squeeze out of you is pure profit to them.

Here’s how it works: Whether or not the collection agency sues you depends on its business model – Some collection agencies file lawsuits all the time and some don’t. One collection agency might try to shake you down for money, but if you don’t pay up, they’ll sell off your debt to another collection agency, which might turn around and sue you in court. Most of these debt-collection lawsuits are pretty profitable for the debt collector because most people don’t show up in court. That’s how they take your money – when you don’t show up in court, the debt collector gets a judgment against you. After the debt collector gets a judgment against you, the court will give them permission to garnish your wages or to take money straight out of your bank account.

#2: When you get sued by a collection agency, give them a run for their money. If you up the ante by making them do work instead of just getting a quick judgment, there’s a good chance that you’ll come out ahead. Collection agencies are not stupid. They know that their profit lies in doing as little work as possible for as much money as possible – your money. A collection agency that makes too many wrong bets will soon be out of business. The ones that are in business know what they’re doing. The collector counts on you to put your head in the sand and to ignore the lawsuit so that it can get a quick judgment against you. You can beat them at their game by protecting yourself BEFORE they get their judgment. Don’t let the debt collector catch you with your pants down!

#3: Once you receive a lawsuit, you don’t have much time! If you don’t respond in time, you lose. I know what you’re saying – “I owe the debt! How could I win?” Even if you end up paying something on the debt, the difference between NOT responding to the lawsuit and responding means the difference between NOT controlling your own money (if you don’t respond) and keeping control over your own money (if you do respond). Do you ant the debt collector dipping their hand into your checking account or not?  If not, give me a call!  I can help you keep control over your own money by defending the lawsuit and/or negotiating a beneficial settlement for you.

Call attorney Jennifer Weil now at (201) 676-0722.

 

 

 

What’s involved with discharging my debts under chapter 7?

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Discharge of debts

The point of filing bankruptcy is to get relief from your debts. So, when and how DO those debts get discharged in a regular Chapter 7 bankruptcy?

Here’s what you need to know:

1.      You’ll receive a discharge of your debts, so long as you play by the rules. Under Section 727 of the Bankruptcy Code, the bankruptcy court “shall grant the debtor a discharge” except in relatively unusual circumstances:

  • If you’re not an individual:  Corporations and other kinds of business entities do not receive a discharge of debts, only human beings do.
  • If you have received a discharge in an earlier case too recently. You can’t get a new discharge of your debts in a Chapter 7 case if:
    • you already received a discharge of debts in an earlier Chapter 7 case filed no more than 8 years before your present case was filed, or
    • you already received a discharge of debts in an earlier Chapter 13 case filed no more than 6 years before your present case was filed (except under limited conditions).
  • If you hide or destroy assets, conceal or destroy records about your financial condition.
  • If in connection with your Chapter 7 case you make a false oath, a false claim, or withhold information or records about your property or financial affairs.

2.      ALL your debts will be discharged, UNLESS a particular debt fits one of the specific exceptions. Section 523 of the Code lists those “exceptions to discharge.” I’m not going to discuss those exceptions in detail here, but the main ones include:

  • most but not all taxes
  • debts incurred through fraud or misrepresentation, including recent cash advances and “luxury” purchases
  • debts not listed on the bankruptcy schedules on time (although there is a major exception to this)
  • money owed because of embezzlement, larceny, or through other kinds of theft or fraud in a fiduciary relationship
  • child and spousal support
  • claims against you for intentional injury to another person or property
  • most but not all student loans
  • claims against you for causing injury or death to someone by driving while intoxicated (also applies to boating and flying)                                                                                                                   

3.      A discharge from the bankruptcy court stops a creditor from ever attempting to collect on the debt. Under Section 524, the discharge order acts as a court injunction any act to collect a debt. If a creditor violates this injunction by trying to pursue a discharged debt, the bankruptcy court may hold the creditor in contempt of court and, depending on the seriousness of its illegal behavior, can require the creditor to pay sanctions.

Photo credit:  Alan Cleaver

How to stop using your credit card for holiday gift-giving

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If you are thinking about filing for bankruptcy, do not accumulate any credit card debt for holiday gifts. Otherwise you may run into trouble over what debts are dischargeable in your case.  Instead, come up with thoughtful ways to express your love and appreciation for your loved ones that do not involve spending a lot of money on gifts this holiday season.

When money is tight, financial anxiety can cloud the holidays, making the temptation to use credit cards nearly irresistible. We live in a rather materialistic culture, so when we express our love and affection through gifts we tend to let price carry too much meaning, often by allowing the gifts we give to define our worth. That is particularly true with our close loved ones, whom we are reluctant to disappoint.

The feelings about expressing love through pricey gifts may be especially intense if there is tension in the marriage, or within the household, which is often the case when there are financial pressures.  But we all know that the price of a gift is not a true measure of our love and that gifts do not buy love. To help you follow your wiser impulses, here are three suggestions.

1.  Give gifts appropriate to your financial circumstances, no matter how modest they may be.  That is the only responsible way, and in fact shows your love—especially to family members—more than if you gave gifts you could not afford.

2.  Direct your energy toward coming up with a gift idea that reflects the connection between you and the intended recipient.  Make it a gift that the person will enjoy but also one that shows you really put thought into it.

3.  Communicate honestly with your loved ones about your financial circumstances.  Do this in a way that is appropriate for the relationship, which will be different for extended family, your significant other, and/or your children. This communication need not be negative.  Instead, it can be a constructive conversation about priorities, honesty, and your love for the other person.

Following these tips can be difficult, but sometimes it needs to be done.

Photo by Billy Halsey.