Is it a good idea for someone to spend profusely in order to reach his credit card limit before filing for bankruptcy? Why not seize the opportunity to go on a shopping spree, or to get a 85,000 BTU barbecue with side burners and a spit burner he longs for? Why not even consider putting aside a cash advance to cover the bankruptcy fees?
Such a strategy to spend beyond one’s means may seem very attractive. But it contains a major flaw: it is seen as fraudulent!
In Canada, it is in fact illegal to contract a loan if there is no real intention of repaying it. Considered as a criminal offense, it may even be supplemented by a penalty of imprisonment.
Consequences of a Fraudulent Bankruptcy
When someone files for bankruptcy, all his creditors are notified. Each creditor is then required to provide to the trustee in bankruptcy his own list of debts owed by the bankrupt. Should a credit card company discover, while preparing its report, a series of unusual or suspicious transactions that leads it to suspect a fraud, it is entitled to a number of remedies.
First, it can require the bankrupt to pay off the entirety of his debts. If the bankrupt refuses, it can take legal action against him and seize part of his salary.
Second, it can oppose his discharge in bankruptcy. The Court may then require the payment of an additional amount to the credit card company before the discharge of the bankrupt.
It should be pointed out that debts arising from a fraud are non-dischargeable. These debts are therefore not written off in the event of a bankruptcy. Not to mention that a bankruptcy leaves a black mark on a credit file, and it hinders significantly the possibility to borrow money in the future.
Given all these reasons, acquiring products or services before filing for bankruptcy, and without having really the means to afford them, is a best forgotten trick. Such a deceitful practice, which will no doubt be discovered, will have very serious consequences.
Bankruptcy must continue to be a solution intended to help out honest consumers in financial difficulty. It must remain a last recourse solution. It must not help dishonest people to abuse and find a way out of a situation they created themselves. Fortunately, such cases are rather rare, and the defrauders are most of the time discovered.
If you are experiencing financial difficulties, try to limit your spending to a strict minimum, and contact without delay a bankruptcy trustee at Ginsberg Gingras. With the help of this professional, you will find a solution to your money problems, and benefit from the best advice.
Example of Fraud
Having already accumulated $45,000 in debts, an individual on social insurance incurred additional debts of nearly $200,000 in less than one year. The woman made false statements on her credit-card applications by claiming that she worked for a clothing company. At the time of her bankruptcy, she had incurred debts with about 20 credit companies. She attributed her bankruptcy to her accumulated debts and lack of employment.
Summary of Offences of the Bankrupt
Bankrupt used deceit, falsehood or other fraudulent means to defraud various credit-card companies of different amounts of money.
The bankrupt was found guilty of 14 counts of fraud and sentenced to two years of probation, with the following conditions:
- not possess any credit or debit cards that are not in her name;
- not seek to obtain any credit cards;
- repay $50,000.
The Office of the Superintendant of Bankruptcy Canada provides many case summaries similar to the one above.