Incurring Debts Shortly Before Filing Bankruptcy: Why It’s a Bad Idea

Close up of petition for bankruptcy form and pen

Filing for bankruptcy can provide a fresh start for individuals overwhelmed by debt. However, incurring new debts shortly before filing for bankruptcy can lead to serious consequences. Any bankruptcy filing should be approached strategically and cautiously and only with the help of an experienced bankruptcy lawyer who can make sure your filing is correct and that you don’t make any mistakes that could jeopardize your application. Here’s why it’s a bad idea to take on new debt just before seeking bankruptcy protection. If you are considering filing for bankruptcy in the Hudson Valley, contact the Law Office of Taran M. Provost, PLLC, in Poughkeepsie and Goshen for advice and representation from a knowledgeable and experienced New York bankruptcy lawyer.

1. Presumption of Fraud

When you incur significant debt within 90 days before filing for bankruptcy, there is a presumption of fraud. This means that the court may assume you took on the debt without intending to repay it, knowing you would soon seek bankruptcy relief. This can result in the new debts being deemed non-dischargeable, meaning you’ll still be responsible for paying them even after your bankruptcy case is concluded.

2. Impact on Chapter 7 Eligibility

In a Chapter 7 bankruptcy, your non-exempt assets are sold to pay off creditors, and remaining eligible debts are discharged. With the help of a skilled bankruptcy attorney, you can make the most of the available exemptions so that you won’t lose any property in the process. However, if you’ve recently incurred new debts, it may raise questions about your financial behavior and potentially impact your eligibility for Chapter 7 relief.

3. Complications in Chapter 13 Bankruptcy

In a Chapter 13 bankruptcy, you enter into a repayment plan to pay back all or part of your debts over three or five years, depending on your financial status. New debts acquired just before filing can complicate the calculation of your repayment plan and may lead to objections from creditors or the trustee.

4. Damage to Creditor Relationships

Taking on new debt shortly before filing for bankruptcy can damage your relationships with creditors. It may appear as though you’re acting in bad faith, which can lead to increased scrutiny of your case and potentially more aggressive collection efforts from creditors.

5. Increased Legal Challenges

Creditors have the right to challenge the dischargeability of debts in bankruptcy. If you’ve incurred new debts right before filing, creditors are more likely to file adversary proceedings to argue that these debts should not be discharged. This can lead to additional legal costs and prolong the bankruptcy process.

Contact Poughkeepsie Bankruptcy Attorney Taran Provost for Help With Debt Relief Options in the Hudson Valley

If you’re considering bankruptcy, it’s crucial to consult with an experienced bankruptcy attorney who can guide you through the process and help you avoid actions that could negatively impact your case. At the Law Office of Taran M. Provost, PLLC, we’re dedicated to helping our clients in the Hudson Valley navigate the complexities of bankruptcy law and achieve a fresh financial start. Contact us today to discuss your situation and explore your options. For help with bankruptcy questions in Orange, Ulster or Dutchess County, call us at 845-675-3243 for a free consultation over the phone or at our offices in Poughkeepsie and Goshen.