Many of those who talk to me about filing for Bankruptcy have already been relying on their lines of credit or loans to make ends meet for some time. Some do this just to pay utilities and groceries while others are creating more debt to maintain a standard of living they cannot afford. Either way, we can help you escape this cycle.

If you find yourself trapped within a debt cycle where you are taking out one loan or line of credit just to pay off another, it is important to stop this pattern as soon as possible if you have decided to file for bankruptcy. Generally, we recommend stopping any use of credit or loans for at least 90 days before filing for bankruptcy. If you choose not to wait before filing, your creditors may challenge your discharge or worse yet; accuse you of fraud, where you accrued a debt without the intention of repaying. If fraud is proven, the consequences can be severe. It is important you at least allow this minimum cooling off period to pass before filing for bankruptcy.

You may find yourself asking at this point, if I could live without lines of credit and make ends meet without accruing debt why would I be looking at bankruptcy? If you are talking with an attorney about filing, ask them how you should manage your current debt situation between your consultation and the date of your case’s filing. Often, we will tell you to stop making payments on any unsecured, non-priority debts. These debts include credit cards, personal loans, pay day advance loans, medical bills and more. Things you should keep paying include your mortgage, rent, utilities and car payment. Any other secured debts should also be maintained if you wish to keep the collateral securing the loans. Usually, just stopping payments on these lines of credit and loans can provide some minor relief that will make budgeting easier while you wait to file your case.

It may sound strange, but by stopping these payments for 90 days before filing, your case will likely be completed much sooner and much smoother. If an unsecured, non-priority creditor receives payments in the 90 days before you file, the court-appointed trustee who oversees your case could decide to collect these funds. The trustee takes this money and then divides it among all of your creditors who filed a timely proof of claim form. This collection and disbursement process will keep your case open for quite a lot longer than a typical Chapter 7 bankruptcy, so it is usually advantageous to both stop using and stop paying for lines of credit.

Did you just recently take out a loan or line of credit, but are now considering bankruptcy? Please feel free to reach out to your Modesto bankruptcy attorney at 209­438-4990.

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