Planning to go Bankrupt is Not a Good Plan

Keith Rucinski,  Chapter 13 Trustee, Akron, OH

Bankruptcy is designed to help individuals who have fallen on hard times to have an opportunity for a fresh financial start.

The hard times are usually not by choice. Health emergencies can happen to anyone, often resulting in large expenses that insurance does not cover. Every year people start new businesses that are not always a financial success (many successful entrepreneurs went bankrupt at one point in their career). And there is always the unexpected loss of a job which causes people to use credit cards to meet daily expenses resulting in high interest charges when the individual can only pay the monthly minimum balance.

Most people never plan to go bankrupt. But what if bankruptcy is planned?

A small percentage of people who filed bankruptcy each year do plan their bankruptcy. These planners have not fallen on hard times. They have planned their lifestyle around filing for bankruptcy in the near future.

They bought big houses they could not afford. They bought expensive cars they cannot afford. All of their take home pay is used to make the mortgage and car payments.

They furnished their house by charging the maximum on all of their credit cards. They have applied for new credit cards in order to pay for daily living expenses. Some even take lavish vacations.

By the time that they cannot pay the minimum balance on all of those cards, they seek bankruptcy protection with well over six digits in credit card debt. They then claim they cannot afford to repay anyone because they have high house and car payments.

These planners are often disappointed to discover that they are not entitled to bankruptcy relief. They failed the major test for bankruptcy relief. They have not acted in good faith. They have willfully and purposely incurred debt to fund their lifestyle. They never had any intention of paying their debt. Depending on the scope of their actions, planners could face civil and criminal penalties.

Bankruptcy relief is meant to help those in financial distress who acted in good faith and had every intention of paying their debt. Then illness, job loss, and other circumstances resulted in the bankruptcy filing. Bankruptcy was never part of their plan.