There’s no getting around it: A bankruptcy is going to cost you.
Our Louisville Chapter 7 bankruptcy lawyers know that at the outset, it seems to make little sense. You are contemplating filing for bankruptcy because you have no money and are deeply in debt. Yet getting out of debt may mean accruing more debt and spending more money.
Sometimes people just don’t have it.
We have been asked on more than one occasion about the possibility of taking out a loan in order to file for bankruptcy.
Technically, you can do this. But there are moral and potentially legal implications for why you should not.
Let’s start by explaining that a Chapter 7 bankruptcy is a liquidation of your debts. For the most part, all of your debts – save for student loans, child support, alimony, etc. – are going to be included. It doesn’t matter whether those debts are five days old or five years old; they will be discharged upon approval of your claim.
The courts expect that you aren’t borrowing money that you have absolutely no intention of paying back.
In fact, it is for this reason that bankruptcy code holds that any charges you incur three months before you file your case are going to be considered nondischargeable. Same thing for cash advances that are taken out 70 days before you file.
So the first thing to understand is that while you will be obligated to include that creditor in your Chapter 7 filing, there is a very good chance that the company will be able to successfully come after you to pay under this clause.
It is presumed that if you took out additional debt during the time frames mentioned above that you had no intention of repaying it. In these cases, the burden of proof is on you to prove that you did have a good faith intention to pay it back. That might be tough.
But even beyond this provision, let’s say you took out the loan four months before you filed, there are ways that creditors could still come after you. They may look very closely at the patterns on your account that may seem uncharacteristic or unreasonable, as a means to challenge the charges.
So for example, let’s say you kept a credit card with a $15,000 limit. However, you never used it. Then, over the course of a a couple months, you ran up some $10,000 in charges – to a lawyer, to a financial planner, etc. The creditor can challenge those charges even if they happened outside of that 90-day window. In fact, they can even go back years, although the further back you go, the less chance the creditor has of being successful.
If you are going to go to the trouble of filing for a Chapter 7 bankruptcy, you want to make sure that when you walk away from it, you can truly walk away – without fear that old debts will continue to haunt you.
So before you consider taking out a loan, or offering preferential treatment to a creditor, such as a family member, mull these possible alternatives:
- Talk with your bankruptcy attorney about the possibility of making monthly payments for a time before you file. You may be able to defer creditor calls to the attorney in the meantime, and you’ll be working toward the ultimate goal of being able to walk away from the debt with no concerns that it will affect you later.
- Discuss with your attorney the possibility of borrowing money from your retirement or 401(k) account. This is something you’d only want to do in an extreme situation when there is no other alternative and only with the intention of fully paying it back in short order once your other debts are discharged. Your retirement accounts are going to be untouchable in the bankruptcy process, so you want to try to keep them as intact as possible. However, if this is your only option to help you free yourself of the other debt that is holding you back from truly living, it may be something to consider.
- Humbling though it may be, consider asking your friends or family to help. Maybe you ask for a little bit from several different people. Be mindful that you may have to list these individuals as creditors – like anyone else in your filing – which means you technically would not have to pay them back if the filing is granted.
- If none of these is appealing or an option for you, consider picking up another job, temporarily and part time, that might help you earn the few extra hundred dollars you are going to need to get the filing underway.
Keep in mind that as painful as this process may be initially, it is the first step toward freedom from all those debts that are holding you hostage.
If you need to speak to a Kentucky bankruptcy attorney or Louisville foreclosure defense firm, contact the Schwartz Bankruptcy Law Center at 866-270-4495 for a free and confidential consultation to discuss your rights.
Should I take out loan to file bankruptcy? April 30, 2013, By Justin Harelik, Bankrate.com
More Blog Entries:
Considering a Louisville Chapter 7 Bankruptcy After Lay-Off, April 22, 2013, Louisville Chapter 7 Bankruptcy Lawyer Blog