If you have already made the decision to file for chapter 7 bankruptcy in the near future to give yourself a much-needed financial fresh start, you need to know what not to do before you file. The financial decisions you make during the several months before you file can have a huge impact on your case and your financial life after your debt is "erased." Be sure to contact a bankruptcy lawyer at least several months before you file so he or she can inform you of other "do's and don'ts." In the meantime, here are two important mistakes to avoid making before you file for chapter 7 bankruptcy.
1. Do Not Begin Racking Up More Unnecessary Credit Card Debt
When planning to file for chapter 7 bankruptcy, it can be all-too-easy to become tempted to max out your existing credit cards since your credit card debt can be erased after your bankruptcy is approved by the courts. You don't have to stop using your credit cards completely before you file, but you do need to use them wisely. You will not be penalized for charging some of life's necessities in the several months before you file, such as food, gasoline, and necessary utility bills. However, if, during the 90-day period of time before you file, you pay for $650 or more of what the judge declares to be "luxury items" with one credit card, that debt will likely stay with you, even after the rest of your debt is discharged.
What are luxury items? While, for everyday people, the word luxury often brings to mind designer clothing and other high-ticket items, bankruptcy judges typically see anything beyond the basics needed to help your family survive as luxury items during a time of financial distress.
Also, don't take out cash advances that add up to more than $925 within the 70-day period before you file because that debt will likely stick with you, no matter what you spend it on.
2. Avoid Taking Out New Payday Loans Several Months Before you File
The laws regarding payday loans that can be discharged when filing for chapter 7 bankruptcy are not as set-in-stone as the credit card laws. The good news is that this mainly works in your favor because your judge will look into why you took out a new payday loan during the several months before you filed for bankruptcy and what you spent it on before they decide whether to discharge the debt or not.
However, if you take out a new payday loan within the 90 days before you file for bankruptcy, your payday loan lender may petition the court in attempt to sway the judge into not discharging the loan debt. Since the payday loan cycle can be so detrimental to your financial well-being you are working so hard to repair by filing for bankruptcy, most legal experts advise that you should avoid taking out payday loans during this time period. However, if you feel you truly need to take out a payday loan during the 90-day period before you file for bankruptcy, speak to your bankruptcy attorney about it beforehand and see what they advise.
Filing for chapter 7 bankruptcy can be a good choice when you are overwhelmed with debt and truly need a financial fresh start. However, it is very important to not consider the several months before you file a "free-for-all" to begin racking up new, unnecessary debt. There are many rules to follow during the several months before you file for bankruptcy to help make sure your case is successful and all debts are discharged. For more information, talk to a bankruptcy lawyer like O'Connor Mikita & Davidson LLC.
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