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Filing Bankruptcy: Worth of Maxing out One’s Credit Cards Beforehand

Most Bankruptcy experts, if not all experts, will specify that Federal Bankruptcy law has sections and rules to protect it from being misused.  It has a demanding accountability on people and professionals who advise the debtor, like a bankruptcy attorney.  Bankruptcy law also has a strong expectation as well on the debtor his or her self when it comes to potential abuse or even fraud.  Section 526 of the Federal Bankruptcy Law (FBL) prohibits a debtor’s attorney from suggesting that its client debtor go rack up as much credit card debt as is [humanly?] possible before filing for bankruptcy relief.  Section 528 details what a “debt relief agency” is required to do, and bankruptcy attorneys are debt relief agencies, by federal law.

FBL Section 544 gives the trustee the power to ignore any debt or transfer of property that the trustee views as an abuse of FBL and or an attempt to avoid losing the property to seizure and liquidation.  The trustee is obliged to investigate the statements of the debtor on the listing of assets and liabilities.  FBL Section 727 gives the trustee the power to dismiss the bankruptcy if the debtor lies under oath.  Listing assets and debts, as well as the 341 hearing and any other statement or information given to the court or the trustee by the debtor is always, always, always construed to be under oath.  Many templates and examples of “bankruptcy debt listings” ask the correct questions and provide entry space for the correct information.  It is oddly interesting that the “date of incurring debt” is not a piece of information that is requested.  However, the trustee is well within the bounds of the interviewing during the 341 hearing to ask when a debt was incurred.  The debtor is required by FBL section 521 to cooperate fully with the trustee or face dismissal.  Several experts concur that answering the question of when debt was incurred is probably the most difficult one for a debtor to answer.  The trustee can also request proof of that date.  Given that the trustee has a list of the creditors from the debtor, and given a number of these creditors are likely at the 341 hearing, anyone who attempts to rack up debt, maxing out credit cards, getting new credit cards and racking up and maxing out more cards is really asking for a large puddle of trouble.  All it takes is one creditor to complain that the debtor took out a card three months prior to the filing and immediately maxed out the card and just as immediately refused to pay and that “house of credit cards” will be tumbling down in a heartbeat.  If this situation occurs, the trustee will be dismissing the filing and cancelling any plans very quickly.  Trustees take their accountability very seriously and expect the same integrity from the debtor.  Neither the bankruptcy courts nor the trustee will abide by any action that is seen as abusing the bankruptcy laws of the Federal government or the sovereign state in which the court resides.  Abusing the law will also likely subject the debtor to potential litigation for violation if fraud is suspected.  The trustee and the bankruptcy court will immediately turn pertinent information over to the district attorney for prosecution.

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