When faced with impending bankruptcy, it is tempting to think that a final shopping spree on credit will have no consequences. After all, you are about to discharge the debt, right? Not so fast. The bankruptcy process is far from being a free pass for reckless financial behavior. It exists to provide relief to those who genuinely cannot meet their financial obligations, not to facilitate fraud.
Learn more about when shopping on credit before filing for bankruptcy becomes fraud.
Understanding fraudulent intent
The most crucial factor in determining fraud is intent. It may be fraud if a person racks up credit card debt with the knowledge that they will not pay it back because of impending bankruptcy.
Examining the nature of purchases
Another important factor is the nature of the purchases. Luxury goods and services purchased on credit shortly before filing for bankruptcy are often scrutinized. This is particularly true if the purchases seem excessive or unnecessary, such as expensive jewelry or lavish vacations.
Timing of the bankruptcy filing
Timing also plays a crucial role in determining fraud. If a person files for bankruptcy shortly after making significant purchases on credit, it can raise red flags. While there are no hard and fast rules, the closer the shopping spree is to the bankruptcy filing, the more suspicious it looks.
Consequences of fraudulent behavior
If the court determines there was fraudulent activity prior to filing bankruptcy, it can deny the discharge of the fraudulent debt. The court may file criminal charges in severe cases.
Understanding the rules and potential consequences can help prevent unintentional fraudulent behavior prior to filing for bankruptcy.