Shelve credit cards before filing bankruptcy

At Bankrate we strive to help you make smarter financial decisions. While we adhere to strict , this post may contain references to products from our partners. Here’s an explanation for

Dear Bankruptcy Adviser,
My husband recently left me with a large debt with our business and I have no choice to but to file bankruptcy (on behalf of the business). He also left me with no income. I used my retirement to set him up in business and he has embezzled money. I do plan to file charges. I have no choice but to use my credit cards to survive and keep my house and car as well as all household and personal expenses while I try to find full-time employment. I am also disabled and have no idea when or what type of work I can find or how long it will take. Please tell me what I should NOT do with my credit cards in the event that I am unable to work in the months ahead and have to file personal bankruptcy. I am desperate for answers because I do not understand the new laws concerning bankruptcy. Please respond. I want to do the right thing. Thanks for your help.
— Becky

Dear Becky,
Becky, if you read my other articles, you’ll know that I only suggest an attorney when it is absolutely necessary. You are in the “absolutely necessary” category. Proceed directly to an attorney and lay out the issues:

  • Can I protect my house in a bankruptcy?
  • If I cannot, what other options exist? Sell the property? Refinance and pay off all the debt?

Just recently, a client hired me after filing a Chapter 7 bankruptcy. This is the type where she eliminates all her debt and gets a fresh start. However, she didn’t know that she had unexempt equity in her house. Meaning, she could not protect her house if she filed a Chapter 7 bankruptcy because she had too much equity in it. She thought filing bankruptcy would be “easy” and the only cost would be her bankruptcy filing fee. Only now the trustee wants to, and can, seize her house to pay creditor claims. One conversation with me and she would have saved many thousands of dollars.

Your situation requires the attention and assistance of an attorney. If it feels like you don’t have the money to hire an attorney, you need to ask yourself if you can afford the consequences of a court judgment against you: seizure of bank accounts and a lien on your home.

Many attorneys provide free consultations. Get a referral from a friend, if possible, because it’s always good to do a little homework. Regardless, when you meet an attorney ask him or her some questions.

  • Has he or she handled cases like this before?
  • What does he or she anticipate this will cost, and how long might it take?

The other difficult question you ask concerns credit card use prior to filing bankruptcy. It never looks good to use a credit card within a few months of filing bankruptcy. Even worse is if you took out cash advances, purchased a new TV, or have simply run up a lot of debt. Recent credit activity can raise the presumption of abuse, and creditors may challenge your right to eliminate the debt. Under the new law, it is easier for creditors to show this presumption of abuse. If you decide bankruptcy is right for you after meeting with an attorney, that attorney should advise you to stop using the cards immediately.