Discharging Debts For Recent Purchase

Bankruptcy clients often ask me if its ok to buy a new car before they file bankruptcy because the bankruptcy will hurt their credit and make it difficult to find financing. I usually recommend that if the clients need a new car they do purchase it prior to filing bankruptcy. However, these clients have to continue making car payments after filing. In other words, if you buy a car or any other item with secured financing, you should expect to remain liable on the debt through and after bankruptcy.

One of my bankruptcy clients purchased an expensive car within a month of filing bankruptcy, and upon filing, surrendered the car to the creditor. Once the creditor sells the car the debtor will owe a substantial deficiency amount. The creditor will likely file an adversary proceeding to deny discharge of that debt. The debtor’s explanation is that just after he purchased the new vehicle a key employee quit his firm which lead to immediate financial problems. True or not true, it does not look good to an outsider.

Don’t incur significant debts, secured or unsecured, file bankruptcy soon thereafter, and expect to eliminate these debts in bankruptcy without a credible explanation and a battle with the creditor.

posted by Jonathan Alper, bankruptcy lawyer, Orlando, Florida