Can I get into trouble with balance transfers in the bankruptcy process?
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If you are considering bankruptcy as an eventual option, balance transfers can cause you problems. Transferring balances between credit cards can be a way to lower your minimum payments or to get a lower interest rate. When you do this, however, you are actually paying off one debt and incurring a new debt.
If you don’t have the present intention to pay the new debt (and if the creditor can prove you didn’t), that new debt could be found to have been fraudulently incurred, which would mean you could not get the debt discharged in a bankruptcy.
Try to avoid using so-called “convenience checks” or other ways of borrowing on the new credit card to pay off the old cards. These “checks” are treated like cash advances. Cash advances within 60 days of a bankruptcy filing are presumed to have been obtained by fraud. Some bankruptcy courts have looked to see how the proceeds from the “check” were spent. These courts have then determined that obtaining cash in order to transfer balances is not fraudulent. There’s no guarantee that every bankruptcy court would reach the same result, however. Plus, a debtor would have to carry the burden of proof to show that they intended to pay off the amount of the advance.
Balance transfers can be advertised by credit card companies in a way that makes them seem appealing: lower rates to transfer to a new credit card, seems like a good option. But a transfer may actually make debt management much more complicated if a debtor is facing financial troubles. The process merely adds more debt, when the credit card holder was already having a hard time paying their debts.
If multiple balance transfers are made, it can be detrimental to a credit score as it can be perceived as a showing of financial troubles. Having a lowered credit score can result in a person being further in debt. In addition, it is always important to read the terms of a balance transfer; like many other credit card transactions, these can have hidden rates and fees. There can be terms such as tacked on charges or an increased interest rate for late payments; or different fees for different types of purchases.
It is recommended that debtors not take this route for multiple reasons, and instead, look into a consumer bankruptcy filing. It is important to discuss each individual situation with a trusted attorney, however, before proceeding with a filing.