Chapter 7 Bankruptcy Trustee May Challenge Increased Unsecured Debt Within Six Months

[tobee43]

March 28, 2011


Bankruptcy trustees seem to be getting tougher on debtors who incur significant credit card debts and large secured debt obligations prior to filing Chapter 7 bankruptcy. I am seeing challenges asserted against significant credit card charges within six months prior to filing bankruptcy. That does not mean that you cannot use a credit card for six months before you file. It means that large charges or a substantial increase in credit within the prior six months could draw scrutiny.

In my experience, more than half of my clients have increased unsecured borrowing in the months leading up to their bankruptcy. Some for good reason; some for not good reasons. Some people, after they see bankruptcy as a good option, will intentionally run up credit cards to buy things they want but do not need. These people are trying to take advantage of their creditors and the bankruptcy system; trustees should come down hard of this type of debtor abuse.

Other people file bankruptcy reluctantly after a financial setback such as a job loss, pay decrease, or unexpected large debt. These people will use credit cards to buy necessities because they hope that their fortunes will improve and they can avoid bankruptcy. In my opinion, such individuals should not be penalized for increasing debts.

However, as a practical matter, if creditors and trustee do not distinguish properly the good and bad reasons for credit card debt prior to bankruptcy these people with good motives are taking a big risk when they borrow in order to buy time to work out of their financial situation. If they are unable to increase income, or decrease expenses, these well-intentioned debtors may have recent debts challenged in Chapter 7 bankruptcy.

People in financial difficulty may have a difficult choice. Few people want to file bankruptcy. But bankruptcy may be the more conservative option at the onset of financial problems. For if you need to incur debts to sustain you while you look for non-bankruptcy solutions you may find that bankruptcy is a more difficult and risky option if your self-help efforts don’t work out because the debt you incurred during your hardship may be challenged. .

http://www.bankruptcyorlando.com/2011/03/chapter-7-bankruptcy-trustee-may-challenge-increased-unsecured-debt-within-six-months-prior-to-filin.html

*** i have mentioned before that it appeared to me that it seemed as though the courts here in florida have had a "change" of attitude. this explains it a bit.

[feelingnutsy]

Thanks for the article---tobee---and I thought that it was
a sacred duty to steer clear of all avoidable credit card debt
for even more than six months prior to filing---this article is
making a case for what I always understood to be obvious.

[Flamingo]

March 28, 2011


Bankruptcy trustees seem to be getting tougher on debtors who incur significant credit card debts and large secured debt obligations prior to filing Chapter 7 bankruptcy. I am seeing challenges asserted against significant credit card charges within six months prior to filing bankruptcy. That does not mean that you cannot use a credit card for six months before you file. It means that large charges or a substantial increase in credit within the prior six months could draw scrutiny.

In my experience, more than half of my clients have increased unsecured borrowing in the months leading up to their bankruptcy. Some for good reason; some for not good reasons. Some people, after they see bankruptcy as a good option, will intentionally run up credit cards to buy things they want but do not need. These people are trying to take advantage of their creditors and the bankruptcy system; trustees should come down hard of this type of debtor abuse.

Other people file bankruptcy reluctantly after a financial setback such as a job loss, pay decrease, or unexpected large debt. These people will use credit cards to buy necessities because they hope that their fortunes will improve and they can avoid bankruptcy. In my opinion, such individuals should not be penalized for increasing debts.

However, as a practical matter, if creditors and trustee do not distinguish properly the good and bad reasons for credit card debt prior to bankruptcy these people with good motives are taking a big risk when they borrow in order to buy time to work out of their financial situation. If they are unable to increase income, or decrease expenses, these well-intentioned debtors may have recent debts challenged in Chapter 7 bankruptcy.

People in financial difficulty may have a difficult choice. Few people want to file bankruptcy. But bankruptcy may be the more conservative option at the onset of financial problems. For if you need to incur debts to sustain you while you look for non-bankruptcy solutions you may find that bankruptcy is a more difficult and risky option if your self-help efforts don’t work out because the debt you incurred during your hardship may be challenged. .

http://www.bankruptcyorlando.com/2011/03/chapter-7-bankruptcy-trustee-may-challenge-increased-unsecured-debt-within-six-months-prior-to-filin.html

*** i have mentioned before that it appeared to me that it seemed as though the courts here in florida have had a "change" of attitude. this explains it a bit.

What I highlighted in red above is very common and usually all it does is put one further in debt. When my hubby lost his job in 2/01 (tech bust), we did not file until 4/02 using cards to rob Peter to pay Paul which just put us more in debt than what we were in 2/01. Savings got us by for 2 to 3 months after his job loss but the extensive job hunt by my hubby produced nothing - he could not find a job making much over minimum wage (compared to his former job of almost six figures). Unless one has a job in hand a few months after job loss making the same amount or more of the job they lost, all one will do is put themselves further in debt.

[tobee43]

feelingnusty: yes, i think it is common practice as well. but, the little twist i hear on this, is now even more than ever the trustees are looking more closely at "large" purchaes. i know, that's always been the case. but lately i have seen here on the forum some members going to bk "hell" down here in the sunshine state. it just seemed to be that the courts are sending a message about filing and attempting to make it more difficult? (like most of us don't have it bad enough!).

flamingo: you and i followed the same path. however, i wasn't very smart using up all our 401 funds to bob water. frankly, it was something i was so unprepared for when it first happened to us. i just am sorry that i didn't realize we should have moved forward quicker with the bk then to spend all of our retirement savings. silly me, i thought things would get better.

[banca rotta]

IMO this is a non issue except for those ridiculous enough to make large questionable purchases and large cash advances inside of 6 months.

All one has to do is wait 9 months and turn the phone off in the mean time.

I am a bit surprised that the trustee is wasting his or her time on this. I thought they are just out to grab non exempt assets.

What do they gain by this unless they want to know where the debtor spent a large cash advance on?

[chrisdfw]

They may be looking for large asset purchases that are non-exempt. If you charge 30,000 in 6 months you must have bought something. Maybe you forgot to list it and they can sell it.

If its the ch7 trustee they are motivated to find non-exempt assets, if its the UST they are looking for fraud or bad faith would be my guess.

[banca rotta]

They may be looking for large asset purchases that are non-exempt. If you charge 30,000 in 6 months you must have bought something. Maybe you forgot to list it and they can sell it.

If its the ch7 trustee they are motivated to find non-exempt assets, if its the UST they are looking for fraud or bad faith would be my guess.

That's why I called this bunch ridiculous. Anyone that charges this much inside of 6 months deserves everything they get from the trustees.

This is obvious fraud.

[feelingnutsy]

Hi---tobee43---agreed---and as my lawyer
told me---it's the big numbers that the trustees are looking for.

[tobee43]

Hi---tobee43---agreed---and as my lawyer
told me---it's the big numbers that the trustees are looking for.

yes, i think it depends on what and where the court is. this article is referring to florida....and i think i mentioned that i notice it happening more and more to those in the middle district and southern districts here in florida.

personally, i think it's because there has been so many people filing that it's a way the courts are attempting to discourage people from filing...you think???

banca: i couldn't believe i saw this actually in "writing" after having discussed this exact situation with others from florida.
it might not be happening so much in other areas as yet.

[discouraged]

It is also feasible, I would think, that trustees/courts are making people aware they will not get away with using credit to obtain 'things' they want rather than things they need prior to filing bankruptcy. The article does state 'significant and large' loans.

I, myself, sometimes sigh and almost -and I say almost because I am an honest person- think of the work my car still needs and the things I needed that I did not buy because I knew if I did not find a job (which I still haven't) I would have to seriously think of bk. The minute I even thought of it, I quit using all cards, even though I did not file until a year later.

BUT - I am glad I did things as I did, although I, like toibee, wish I'd been wise enough to file when my savings were gone rather than use my 401k to try to survive and wish I'd filed bk a long time before I finally did.

[frogger]

That's why I called this bunch ridiculous. Anyone that charges this much inside of 6 months deserves everything they get from the trustees.

This is obvious fraud.

I agree. There is a huge difference between surviving and abusing/defrauding the system, and that difference is not hard to distinguish.

[tobee43]

It is also feasible, I would think, that trustees/courts are making people aware they will not get away with using credit to obtain 'things' they want rather than things they need prior to filing bankruptcy. The article does state 'significant and large' loans.

I, myself, sometimes sigh and almost -and I say almost because I am an honest person- think of the work my car still needs and the things I needed that I did not buy because I knew if I did not find a job (which I still haven't) I would have to seriously think of bk. The minute I even thought of it, I quit using all cards, even though I did not file until a year later.

BUT - I am glad I did things as I did, although I, like toibee, wish I'd been wise enough to file when my savings were gone rather than use my 401k to try to survive and wish I'd filed bk a long time before I finally did.

you and me both! but, i was really of the "dreamworld" attitude that i was going to make it out of this mess, one way or another...but it just didn't work out for us. if i had that 401 money now, it really would have been such a help with our new home and new lives. but, it is, what it is.

[tobee43]

That's why I called this bunch ridiculous. Anyone that charges this much inside of 6 months deserves everything they get from the trustees.

This is obvious fraud.

yes, i have heard people doing this right and left and as you and fogger point out...this is something that of course would be abuse. but, what i was getting from this, is the courts here in florida i going beyond that six month period. and, truthfully, i believe that makes some sense if someone when out and charged a huge amount on their cards and then filed bk in the"seventh" month time period.

I am seeing challenges asserted against significant credit card charges within six months prior to filing bankruptcy. That does not mean that you cannot use a credit card for six months before you file. It means that large charges or a substantial increase in credit within the prior six months could draw scrutiny.

[feelingnutsy]

Hi---tobee43---it certainly would---and I can fully
understand why trustees are doing it---abuse of the system.

[tobee43]

Hi---tobee43---it certainly would---and I can fully
understand why trustees are doing it---abuse of the system.

exactly what i think as well. with so many bk's though, i also think the courts are attempting to discourage people from filing?