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Do not spend excessively before you file for bankruptcy

One of the prevailing myths about bankruptcy is that since you are going to eliminate your debt anyway, you might as well spend frivolously for a month or two before you file.

For instance, perhaps you have a credit card with a $20,000 limit. You have $5,000 of debt on it, and along with all of your other growing debt, you tend to add about $1,000 per month. You decide to declare bankruptcy. Should you go out and spend your last $15,000? You’re going to eliminate your credit card debt, so why not have fun with it?

Do not do it. Many courts consider this bankruptcy fraud. Any fraudulent debt stays with you in bankruptcy. Generally speaking, excessive spending sticks you with that debt for good. You’re actually hurting yourself because you’re removing your credit card debt from your bankruptcy filing and ensuring that even bankruptcy cannot get you fully out of debt.

What the court is going to look for is an abnormal increase in spending, such as jumping from $1,000 per month to $15,000. They understand that you still have to spend money. Bankruptcy is not an overnight process. You just cannot go out and spend the money on frivolous items and purchases, clearly just trying to take everything you can from the lender before you file. That is a huge red flag to the bankruptcy court.

It is very crucial that you understand the bankruptcy laws in New York. A mistake like this could really cost you. Take the time to look into your options and make sure you know where you stand and how to proceed.

Source: US News, “5 Bankruptcy Myths Debunked,” Susan Johnston Taylor, accessed June 01, 2018

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