Some Bankruptcy Courts Are Making Debtors Pay Credit Card Debt
Be very careful – bankruptcy is not always the answer you may have hoped for.
I was recently speaking to a banker in California with whom I was doing an SBA workout. When he asked me what my intentions were with my clients substantial credit card debt he told me about a recent experience of his – one I have heard about before – and it served to confirm the practice as becoming standard operating procedure in many bankruptcy courts.
The judge asked the petitioner (the person seeking bankruptcy protection) whether or not they used the credit cards within the past year and of course they did, extensively in this case. He further asked if they had used them within the past 90 to 120 days, which they also confirmed, as they were living off them at that point in time with no revenue from their defaulting business.
The judge then went on to explain to them rather harshly that he considered this an act of larceny and would not discharge it as surely they should have known they were heading for disaster and failure and would not be able to repay this debt. Thus, he concluded they knowingly used the credit cards without the intention of repaying them. Clearly, he said, they had absolute knowledge within the past 90 to 120 days that they were not going to be able to repay this debt and thus refused to allow the credit card debt to be discharged, ordering them instead to repay all their credit card debt for the past year or he would consider asking the Assistant US Attorney to explore criminal charges against them for larceny.
Wow! What ever happened to a second chance? It doesn’t exist anymore.
They left the court with an impossible dilemma – pay back over $100,000 of credit card debt without a source of income or face possible criminal charges from the bankruptcy court. Talk about jumping from the frying pan into the fire!
While this may not yet be the norm, it is a practice that is gaining momentum. The point is that once you enter bankruptcy court, your life and the disposition of your debt and your assets is left up to others who may not have your best interest at heart. In fact, they are clearly there to protect both the creditors and the petitioner and it is out of your hands once you step into that court.
It’s just one more reason to consider a workout instead of filing for bankruptcy protection. Be careful, it is not always as nice as you may have hoped. Once you give up control of your destiny to others, you may not like the results and by then, it is too late.
