Credit – Pre-Bankruptcy Tips, Part 2

DO: Wait a Few Months Before Filing

Under the law, the burden of proof is on the creditor to show that a particular debt should not be discharged. This means that the debtor doesn’t have to prove that he or she didn’t intend to defraud anybody. It’s up to the creditor to prove that intent. So, how can a creditor get inside the debtor’s head and show that the debtor wanted to take the money with no idea of paying it back? Creditors can show a presumption of fraud by the circumstances surrounding the charges.

For example, they can point to amount and the timing. If you charged more than $500 for luxury goods or services to a single creditor within ninety days of filing, it’s presumed that you didn’t intend to pay it back. The same presumption is made when it’s a cash advance of more than $750 within seventy days of filing. The bankruptcy code doesn’t spell out what constitutes a luxury, but you don’t want to be in a position where that determination is being made by a judge.

Again, the less attention you attract, the better. So in cases where you have made questionable charges, you must hold off on filing until at least 120 days have passed. The extra time is just a little insurance. Filing on the ninety-first day after a big charge might throw up a red flag of its own. Generally speaking, the more time that passes since the charges, the less likely the creditor will object.

Of course, there are times when you can’t wait to file for some reason, for example, to stop a foreclosure or a wage garnishment. But if there is no strong reason to file right away, it’s best to wait a bit.

DO: Pay Something Toward Recent Charges

Those who have charged something large recently, a good advice is that they make some payments to that creditor in the meantime. When the creditor looks at your account, it will look at the recent charges, but it will also look at the recent payments. If you make a large charge right before filing and then make no payments, it will look fraudulent. But if you let some time pass and you make a few payments after the last charges, it looks as if you are indeed trying to pay it back. Think of it as putting an extra quarter in the parking meter. It may not be necessary, but it’s a small price to pay to avoid a larger expense down the line.

At the same time, you probably don’t want to pay those other guys anything. You can probably safely stop paying on your unsecured credit cards. Except for the situation I described above, you’d be throwing your money down a rat hole. It won’t make a whole lot of difference if you manage to send off a $20 minimum payment right before filing. The account will be included in the bankruptcy and it doesn’t matter if the total ends up being $2,476 or $2,456.