When you file for Chapter 7 bankruptcy, credit card debt is typically among the types of debt you will be able to have discharged. For some people, there is a temptation to completely max out all of their credit cards if they already know they are going to be filing for bankruptcy. The plan would be to get as much stuff as they can — essentially for free — and then having the debts completely wiped out.
However, bankruptcy courts closely analyze credit behavior before a filing. By looking at your credit card statements in the months before you filed for bankruptcy, courts will determine whether you seemed to have had any intent to ever pay back your debts.
If you were to engage in this strategy, you would most likely be found to have committed bankruptcy fraud. At the very least, your bankruptcy case would likely be thrown out of court and your debts would not be discharged. But more seriously, if found guilty, you could also be forced to pay significant fines, adding on to your debts, or even serve jail time.
You might also be guilty of fraud if you attempt to transfer gifts or money to your family or friends while knowing that you would soon be filing for bankruptcy. There are many laws in place specifically designed to prevent people from making gifts for the purpose of devaluing an estate in the eyes of creditors. Even if you don’t expect to get these gifts back after the bankruptcy, they are still considered fraudulent if you made them while being unable to keep up with your bills.
If you have fallen under insurmountable debt, the best thing to do is stop using your credit cards and file for bankruptcy protection. You may have your debts forgiven and be granted a clean slate to rebuild your credit, while avoiding potential accusations of fraud.
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