running up credit cards

[RLOPE]

So, in telling friends how my wife and I have arrived at the conclusion that we'll be needing to file bankruptcy probably in the first quarter of next year, more than once I've heard, 'oh yea so-n-so ran up their credit cards and then filed for bankruptcy'

This perplexes me. Clearly it is unethical, but do people actually get away with this? ? ? You'd think a trustee would slam this sort of situation.

[AngelinaCatHub]

So, in telling friends how my wife and I have arrived at the conclusion that we'll be needing to file bankruptcy probably in the first quarter of next year, more than once I've heard, 'oh yea so-n-so ran up their credit cards and then filed for bankruptcy'

This perplexes me. Clearly it is unethical, but do people actually get away with this? ? ? You'd think a trustee would slam this sort of situation.

Few people "get away" with this FRAUD. That is why there is a 90 day to six month look back period and that most experienced here, recommend stop use for at least that long. You will be asked for the billing and what was purchased. In an emergency a non-luxury item may be over looked but still may be questioned. A trail of regular use will buy you a quick dismissal. (the word 'you' is rhetorical). Those who advise or recommend screwing over a company or person who has agreed to give you credit, are not your friends and I would question their honesty.

The best way to successfully and painlessly (relatively) to proceed through your bk, is total honesty, and accuracy. Works every time. 'Hub

[frogger]

It's possible to "get away" with it, however I don't want to see a guy in the mirror every day that was a fraudster. Don't need them in my life.

[SunshineGal]

There are two different issues here. Most people accumulate debt with the intention of paying it back, so although they "ran up credit cards", there wasn't anything fraudulant going on.

Now, if they decided to file and THEN ran up credit cards, that is straight up fraud as they used credit without intending to repay. Although it's possible people may get away with it, it's a big gamble. If they get caught the entire case could be dismissed, the debt could be declared non-dischargable and I would imagine in some cases they could be prosecuted as well.

[drowning123]

When I decided to file bk I was really broke and just went for it. I didn't know the first thing about "planning." I learned a lot here. LOL.

[scorpion35]

When I decided to file bk I was really broke and just went for it. I didn't know the first thing about "planning." I learned a lot here. LOL.

what do u mean by "just went for it" ?

[chrisdfw]

A couple of possibilities
1. Some people really do it, and some get away with it. Some get caught, some get stuck with the debt and others go to prison, so it is a possibility that you can get away with it, especially if it was a significant
2. Some people don't want to admit they ran up debt, got in over their heads, and went bankrupt. They would rather say they knew what they were doing than admit they were foolish spenders. Some people would rather be seen as dishonest than financially unsophisticated.

The further in advance of the bk, the less likely the problem.

On paper, I have a huge run up in total debt, but I lost my job and tried to get a new business going. In the two years while I was still paying on time even, I had a run up in unsecured debt as I transferred secured debt to unsecured (and got lower interest rates at the same time) and started a different business at the same time I was working my job.

On paper I went from 20,000 or less of unsecured debt and 20,000 secured debt, to 120,000+ of unsecured debt in 2.5 years. I could come here and claim to be a genius who was playing the system, but in reality I was overleveraged in risky ventures, so when I lost my job and got injured, my business could support me, but not my debt load. Honestly I was terrified that I would have to deal with adversary procedeedings, but breezed through. I kept everything and shed a lot of stress. It was a great relief, but to pretend I was some kind of genius would be very misleading.

I think a lot of people fall into both categories, because banks can't monitor ever case in depth, and there is limited incentive to challenge a broke bankrupt debtor, even if they win an AP they still have no guarantee of ever collecting.

I also know people who are highly leveraged, and know they can end up bankrupt, who plan accordingly. They are trying to suceed, but have a good out. They keep all their money in IRAs and their house. In the event they fail or get sued, they can keep their stuff in a bk.

[drowning123]

what do u mean by "just went for it" ?

It means between the time I contemplated filing and the time I filed was 2 weeks.

[AngelinaCatHub]

There are two different issues here. Most people accumulate debt with the intention of paying it back, so although they "ran up credit cards", there wasn't anything fraudulant going on. This is true and the 'norm'.

Now, if they decided to file and THEN ran up credit cards, that is straight up fraud as they used credit without intending to repay. Although it's possible people may get away with it, it's a big gamble. If they get caught the entire case could be dismissed, the debt could be declared non-dischargable and I would imagine in some cases they could be prosecuted as well.

Why incur more stress "working the system" when you have enough normally through the process and acceptance to bk.

Unfortunately, the credit card companies are left to police this behavior in most instances and they usually can't be bothered unless there has been a significant amount of debt incurred (50k+) in the run up to filing. I have found that most people filing for BK have honestly run up the debt. As an attorney, I would turn away people who I thought committed fraud. Hopefully there are plenty of other honest attorneys out there with similar attitudes.

I honor you for that belief. It is unfortunate so many "Tort Sharks" give a bad name to an honorable profession. 'Hub

[ValleYum]

So, in telling friends how my wife and I have arrived at the conclusion that we'll be needing to file bankruptcy probably in the first quarter of next year, more than once I've heard, 'oh yea so-n-so ran up their credit cards and then filed for bankruptcy'

This perplexes me. Clearly it is unethical, but do people actually get away with this? ? ? You'd think a trustee would slam this sort of situation.

do you mean individual purchases that together add to over $500, or do you mean a single purchase of over $500?

Do the trustees ONLY look at activity or spending patterns in the last 90 days of spending on the credit cards?

Drowning123 - when you say don't make any big purchases within 6 months before filing, how much $$$ are we talking? ? A couple hundred dollars, or thousands?

You must be really worried about credit cards. Lots of your threads are info requests and what-if scenarios regarding use of credit cards and the dos and don'ts of bankruptcy. If you haven't done anything wrong (and don't plan to) I think you are overly stressing.

[helpme2010]

So, in telling friends how my wife and I have arrived at the conclusion that we'll be needing to file bankruptcy probably in the first quarter of next year, more than once I've heard, 'oh yea so-n-so ran up their credit cards and then filed for bankruptcy'

This perplexes me. Clearly it is unethical, but do people actually get away with this? ? ? You'd think a trustee would slam this sort of situation.

I think of this as the guy at the party that runs his mouth saying, "yeah I hide alot of my income from the government - so I don't have to pay taxes". Sure many people do this and some never get caught, but if you get caught, you will pay the price.

Honesty is the best policy. And using your credit card to help pay your bills, food, utilities, car repairs, etc. is ok. Some just do sudden outrageous spending sprees and this is really playing the odds that the trustee will investigate it. Maybe the trustee won't, but I often wonder how some of these people that do this get away with it too.

[chrisdfw]

I think of this as the guy at the party that runs his mouth saying, "yeah I hide alot of my income from the government - so I don't have to pay taxes". Sure many people do this and some never get caught, but if you get caught, you will pay the price.

I think many of the people who do this don't really make much in the first place. I suspect it is the same for bankruptcy, statistics show that in many bankruptcies there just isn't all that much debt. Secured debts still get paid. How much credit cards can most people really run up, and still have income low enough for chapter 7? Running up the $1 thousand dollar limit premier card is no great feat.

I regard much of it as bragging, and much of it not even true. Those people who think they are really hiding their income, probably can't recognize the difference between revenue and expenses. they probably think they make a lot more than they do becuase they fail to recognize their expense.

[Flamingo]

So, in telling friends how my wife and I have arrived at the conclusion that we'll be needing to file bankruptcy probably in the first quarter of next year, more than once I've heard, 'oh yea so-n-so ran up their credit cards and then filed for bankruptcy'

This perplexes me. Clearly it is unethical, but do people actually get away with this? ? ? You'd think a trustee would slam this sort of situation.

What you are hearing is why there is such a stigma associated with filing BK; many people think people just run up their credit cards and file, dumping the debt and getting away with it. What most people don't know is that yes, of course, that happens, but the majority of people are responsible people who just got caught with high debt and then something occurs where they cannot pay the bills anymore; job loss, lack of savings/planning, major medical occurance, etc., and would never in a million years ever think they would end up filing.

Some people feel that heck, I am going to have to file so I might as well run up all my cards to the limit and stick it to the creditors and stick it to John Q. Public who has to cope with rising costs and fees as more debt is dumped by those filing bankruptcy. What those people don't realize that if they do run up their cards knowing they are going to file, that is called "fraud" and is easily detected by a trustee and if a trustee suspects fraud, he/she can ask for records going back over one year (bank statements, credit card slips, paystubs, etc., etc.).

[chrisdfw]

And a lot of it is perception, what people think is that someone who filed bankruptcy did was run their cards up and file, while in reality they accumulated
debt over years of living beyond their means, paid minimum payments and interest for many years that probably totaled much of what they originally charged, then
after years of payments they go bankrupt.

Perception is that they ran up their cards and declared bankruptcy, but the reaility is they may have more than paid for their originaly purchases in finance charges.

Trust me, running up debt just to go bankrupt is no way to be a financial winner, and its more of a perception than a reality if you look at the bankruptcy statistics. How much unsecured debt is discharged in most chapter 7 cases? Just credit card debt and not judgements for malpractice or personal injuries where a person is sued and forced into bankruptcy. The fact is that it just isn't easy to go into enough unsecured debt to make bankruptcy fraud a way to get rich. Especially with the means tests pushing over median debtors into 5 year chapter 13 plans. Being on a court approved budget for 5 years is a steep price to pay to "run up" credit cards and walk away.

[BKlooker]

I think it’s important to remember that at the end of the day, it’s about survival. I have found in my personal experience that for every person out there that goes out and buys 15 grand worth of ‘luxury’ purchases leading up to BK in 3 months, there are 99 other people or more who have been drowning in debt, struggling to get by, having problems keeping the lights on, lost jobs and can’t find work for ages, and failing to even keep their children well clothed/fed for months, if not years leading up to filing day.

‘Racking up’ credit cards has 2 implications. One is that the debt on the card was recklessly acquired for selfish, non-necessary reasons, relative to survival. The second is that the amount is sky high. How ‘necessary’ any charges are of course is very subjective.

As others have pointed out, even though it’s been stated here over and over not to use credit for 3-6 months before filing at least, I think a lot of people just don’t have that kind of time to spare due to pending judgments and garnishments for outstanding debt already, coupled again with the need to use unsecured debt to pay for food, medical expenses, electricity and gas, etc., amongst other things. I see a lot of people here worrying and warning of the trustee reaming you out for ‘detected fraud’ for racking up debt before filing, but honestly there would have to be a pattern behind it, a very sharp increase in spending, and specific types of stores spent on for that to happen.

I mean, if you have 3 months worth of statements and 8 grand spent each month at Best Buy and Nordstrom’s leading up to filing….yea it’s likely to not going to bode well for you. But if you have 1.5 grand a month in debt racked up each month, have paid the companies each month the minimum or more up until you filed, are still employed, and the total amount is accumulations of groceries for a family of 5, medical bill payoffs, electric bills for your house, and pet food stores, it’s going to be hard even for a trustee to pursue that, as it fits the pattern of any other debtor in the court who made ‘final throws’ and desperate attempts to stay above water before throwing in the towel and filing BK, with honest intentions of paying back the debt. Proving someone attempted to defraud isn’t easy without a clear pattern.

The truth is one could indeed ‘get away’ with some ‘free stuff’ before filing (and yes, some people do) if you wanted to, so long as it was small enough and purchased under the guise of a normal, like a few hundred bucks worth of stuff at Wal-Mart or something (disclaimer: NOT encouraging anyone to do this…fraud is a crime, not to mention totally immoral, so if you don’t like prison, don’t be stupid and do this!). But to think this is the norm is just unrealistic, especially in this economy, the worst since the Great Depression.

In all the reading around this forum and online in general, I cannot find a single reported incidence of anyone having to go through an AP proceeding with a CC company UNLESS a) The debt was substantial, in excess of 1 grand for a single purchase AND b) the debtor has generally stopped paying on the card long before filing (a year or more) AND was still purchasing very large items, when the debt itself was already substantial (100K or more on a single account) or c) the debt was incurred ‘strangely’, like the one person who reported using their card AFTER FILING to pay for emergency dental surgery which cost 1,500 bucks, which they did come after her for to recoup, successfully settling out of court. And the CC companies seem to virtually never show up for 341 meetings.

As chrisdfw pointed out, pestering the peasants for pennies isn’t the most profitable way for any bank or CC company to spend it’s time or money. Scavenging off people who have already declared themselves insolvent makes no sense, especially when legally they can only pick at individual purchases, not the entirety of the debt, unless they can prove serious fraud or abuse, which is quite hard to do legally. In addition, even if you say ‘ok, pay us back that 5 grand you rung up for that flat screen 3 days before filing’, it may take years to get that money back, if at all, with little interest on it, and would likely cost the CC company a lot of money in legal fees in paying a lawyer to proctor. They just have too many bigger fish to fry. In the time it takes to do all that, they could simply increase the interest rates on a few millionaires who have hundreds of thousands of debt, which costs the CC company nothing and gains them tens of thousands in less than a year, versus the 50% of the 5k they get back from you over the course of 3 years, after legal fees, on debt the CC company writes off anyway.

So yea, there will always be someone out there who is trying to get away with as much as possible, but it’s better consider those of us who are just trying to make way for a better future. Many of us on here agonized for weeks, if not months or years, over whether to file or not and had a lot of emotional issues doing so. I think that's more the norm than the freeloaders given the current state of affairs.