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Credit card balance transfers

What Problems Will I Have if I Recently Transferred My
  Balance from a High Interest Card to a Low Interest Card?

Credit card companies solicit balance transfers constantly.  If you own a credit card, your name and address will included in various databases, and other credit card companies will try to attract you with offers promising low or zero interest for three to twelve months.  In fact, the major credit reporting agencies themselves generate “pre-approved” lists that they sell at great profit to credit card companies.

Balance transfer offers have become very common in recent years.  If you have been making minimum payments only and struggling to pay high interest cards, an offer that promises zero or low interest rates even for just a few months will be desireable.

In a bankruptcy context however, you will have problems if you transfer a large balance from one credit card issuer to another.  Old credit card debt is usually easier to deal with in a bankruptcy, especially if that debt was incurred over the course of several years .  New debt, whether the result of recent purchases or the result of a balance transfer, can give rise to discharge challenges in Chapter 7 or objections to confirmation in Chapter 13.

If You Have Not Yet Transferred a Balance,
Do Not Do So if Bankruptcy is a Possibility

If you are contemplating bankruptcy and have not yet applied to transfer your balance from a high interest card to a low interest card, we recommend that you take no action prior to speaking to an attorney at Clark and Washington. New activity of any type (new purchases or new charges) can create problems and our goal is to avoid problems or complications of any type for our bankruptcy clients.

Tell Clark and Washington About Recent Balance Transfers

If you have already completed a balance transfer, all hope is not lost, but we need to be aware of the recent transfer when you meet with our staff.  Specifically, we need to know when you processed the transfer and what you did with the money.

The Bankruptcy Code provides that debt incurred with no expectation of repayment may be held to be non-dischargeable.  In other words, if you transferred $8,000 from a Citibank Visa to a Discover Card, Discover could take the position that at the time of the transfer you were “insolvent” and that your budget did not have enough disposable income to pay back the debt to Discover. Click on the link to read a helpful bankruptcy blog post about discharge issues arising from credit card balance transfers.

In addition, if the transfer occurred less than 3 months prior to filing for your bankruptcy, the payoff to Citibank could be considered a “preferential transfer.”  In certain circumstances, trustees have the right to recover these preferential transfers (i.e. in our example, get the money back from Citibank). You can read more about this preferential transfer issue here.

Since your goal in filing bankruptcy should be to eliminate as much debt as you can without problems, the last thing you would want to see is a challenge to your bankruptcy case.

As a matter of strategy, we might advise you to hold off on filing for a few months and to make “good faith” payments during these few months.  We may also decide that your need to file is immediate and we will have to take our chances with the trustee.

In any case, our law firm can offer you the best advice if we have a full picture of your situation.  Information about balance transfers is essential to our proper representation of you.

Clark & Washington, Attorneys, 237 French Landing, Nashville, TN 37228.
Phone: 615-831-7003



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