Many southern California bankruptcy experts would argue that the single most important thing you need to do when considering filing for bankruptcy is STOP using your credit cards. The worst thing you can do for a potential bankruptcy case is to give the appearance that you are “running up” your credit account balances. Receipt of a bankruptcy notification will result in a thorough review by each of your creditors. If they see a questionable purchase history, they will challenge your right to discharge part of your balance or, in some cases, the entire balance. That is why it’s important to understand the rules with credit cards and bankruptcy before you file.
The second most important issue filers and potential filers need to be aware of is that any payments made to any ordinary creditor within 90 days of filing for bankruptcy and totaling more than $600 must be immediately disclosed on your bankruptcy petition. This includes car payments, mortgage payments, credit card payments and personal loan payments. If you have made any payments to an “insider” creditor or family member in the past 12 months prior to filing, you must immediately disclose this as well.
Payments made to ordinary and insider creditors can be problematic for your bankruptcy filing. Preferential payments can result in problems for both the filer and the creditor that received payment. The legal reasoning behind this particular issue is simple. All creditors are treated equally during a bankruptcy. It doesn’t matter if it’s your sister or the bank that holds the note to your house. The laws are in place to attempt to maintain this equality between creditors. This aspect of the bankruptcy process is taken very seriously and making preferential payment and failing to disclose it could result in the elimination of your right to obtain bankruptcy protection.
In fact, the “all creditors were created equal” law is so thorough that it includes your creditors with paid off balances. Every credit account in a bankruptcy petitioner’s name, with or without a balance, will be closed. There are, admittedly, exceptions to this rule, but they are just that…the exception. Do not plan on being able to utilize a credit account post-bankruptcy just because it was paid off prior to filing for bankruptcy.
If you need additional information on how to handle your creditors, your payments to creditors, or the year before you file for bankruptcy, please get in touch with the southern California bankruptcy attorneys at Westgate Law.