Why Bankruptcy Planning is Essential

For many people who end up filing for bankruptcy, living off of credit cards had become a necessary way of life. In order to make ends meet, keep a roof over their heads, and feed their families, many would-be bankruptcy filers use credit to meet their daily needs. After living like this for years and never being able to catch up, people turn to bankruptcy often times as a last resort. But for people in this situation, the monthly use of their credit can complicate their bankruptcy filing.

Presumption of Fraud:

Under 11 U.S.C. § 523 of the bankruptcy code, there is a presumption of fraud when the Debtor has incurred specific amounts of debt on credit within a certain time frame before filing. This is important to know, because in bankruptcy you cannot discharge or eliminate debt that was obtained fraudulently. The presumption of fraud essentially shifts the burden of proof from the creditor, who normally would have to prove that the debtor did not intend to repay the debt at the time of purchase, to the Debtor who now has to prove they intended to pay. The consequence of being unable to prove that the debt was not fraudulent results in the debt being excluded from discharge. This means that while the Debtor’s other debts are eliminated after the bankruptcy; this particular charge amount is not and the Debtor is still personally liable and required to pay the creditor.

Time Limits and Dollar Amounts:

As of April 1, 2013 the minimum dollar amounts that trigger the burden shift from the creditor to the Debtor as explained above have increased. Under the bankruptcy code, if the Debtor charged on any one credit card more than $650.00 aggregate in the 90 day period before filing, there is a presumption that the charges were made fraudulently and are non-dischargeable. If the Debtor has obtained more than $925.00 in cash advances from any one creditor in the 70 day period prior to bankruptcy than the debt is presumed to be non-dischargeable. The general idea expressed by these rules is that if someone is incurring these amounts of debt this close to filing bankruptcy, they were probably not intending to repay the debt. If they didn’t have the intent to repay the debt they have committed fraud. While this may be untrue, the presumption of fraud arises whenever these time and debt limits are triggered.

Defenses:

There are several ways to defend yourself if a creditor is alleging you obtained the debt fraudulently based on the above reasons. The first is to show that the charges were made for the support and/or maintenance of yourself or your dependent(s). You must also show that the charges were reasonable. This means that if you used your credit card to buy food or clothes for your children, you will probably be alright. Another defense is to prove that you had the intent to repay the debt but some intervening factor forced you into bankruptcy. You may be able to show this by providing evidence that at the time the charges were made you were employed and had the ability to make your payments but shortly thereafter you were laid off or experienced health problems that effected your income.

Timing:

Another option is to wait out the 70 or 90 day look-back period before filing. Waiting doesn’t necessarily mean you won’t get an objection to discharge by a creditor but it does mean that the burden of proof shifts back to the creditor.

If you are considering filing for bankruptcy there are many rules that you need to be aware of. Don’t take this important legal step without a qualified bankruptcy attorney to advise you.

The Law Offices of Melanie Tavare is a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code