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What is the Risk of Incurring New Debt While Considering Bankruptcy?

If your finances are on the brink and you are facing a potential bankruptcy, how should you handle decisions related to incurring new debt? It’s important that you understand potential risks and consequences and how the situation might affect you in the future.

Taking on New Debt Before Bankruptcy

The need to take additional debt could be caused by a variety of life circumstances:

1. Increased credit card limits to accommodate expenses and fees

2. Accepting a new credit card or loan offer (unsecured debt)

3. Buying furniture or a car on credit (secured debt)

4. Notification of new debt, such as a tax bill or child support

At this point, the most important thing you can do is consider the needs of your family and talk to a bankruptcy lawyer for recommendations. Higher debt balances or taking out new loans might seem like a good choice if you are trying to consolidate the balances. But taking on new debt could be a risky decision before filing bankruptcy.

Challenges to a Discharge of Debt

All of the above new debt examples are situations that could result in the creditor challenging the discharge of a debt. For example, the recent debt might be considered fraudulent based on the argument that you incurred the debt without an intention to pay it back. If you accepted the debt without a sensible ability to pay it back, then there might be legal issues with discharging that debt.

As a general rule of thumb, the larger amount of debt you incur immediately before filing bankruptcy, the greater risk you face. A short timeline and a large balance mean that the creditor is more likely going to raise a challenge on the discharge. As a result, you could potentially have more money that is still owed, despite the bankruptcy filing.

Advice Before Filing Bankruptcy

You can’t always predict what the future will hold, which means that you might not anticipate the timing of an upcoming bankruptcy. But if you think there is a possibility of filing bankruptcy any time soon, then it is best to avoid taking on new debt whenever possible.

Our team at Miles & Hatcher, LLP is here to provide answers and solutions for your unique circumstances. If you are looking for support, then the counsel of an attorney can be valuable during this challenging time. For more information, call us to book a free consultation: (909) 481-4080.

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