Can I Get A Cash Advance Before I File Bankruptcy?

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What Is A Cash Advance?

Father and Daughter on ComputerLet us begin by giving a brief over view of the term cash advance. Many of us have heard the term but don’t know exactly what it means.  A cash advance is often referred to as a payday loan.  A cash advance can be obtained through a credit card or charge card issuer.  It is seemingly a loan taken out against a credit card that you already have.  Those with a credit card and cash advance service are able to receive cash from an ATM, bank, or some other financial institution.  This really depends on the type of credit card and whether their cash advance services are available.  Many people often confuse the advance as free money, but it is certainly not.  This has to be paid back to the creditor and one of the biggest challenges is the high interest.  The interest on a cash advance tends to be much higher when obtaining it through a credit card.  You are not able to take out a cash advance for the full available balance on the credit card.  However, this doesn’t mean that you aren’t going to be charged high amounts of interest on the loan.  This will cause the monthly payments on the credit card to eventually increase.

Generally speaking, cash advances made within 90 days of filing bankruptcy are not going to be wiped out.  Cash advances within 90 days of filing not only pose a problem with court, but also the creditor, who could potentially seek an adversary proceeding.

 Cash Advances and Chapter 13 Bankruptcy

Keep in mind, the Chapter 13 bankruptcy is also recognized as a repayment plan.  In a Chapter 13 bankruptcy it isn’t likely that a creditor will file an adversary proceeding against you because of a cash advance.  However, this doesn’t mean that a creditor can’t file an adversary proceeding if they choose to. The creditor may also have the option of objecting to confirmation of your Chapter 13 Plan, if your Plan does not to propose to repay the amount of the advance back to the creditor with whom you took the cash advance. This is obviously up to the creditor who the cash advance was taken out with.  The most important thing to remember is generally speaking, cash advances within 90 days of filing may pose a problem with the bankruptcy court.  For example, if you decide to file a Chapter 13 bankruptcy and have taken out a cash advance within 90 days preceding the filing, the court is going to look for any fraudulent behavior.  If you took out a cash advance knowing that you were going to file bankruptcy, then you are going to have a tough time arguing that it was not fraudulent behavior.  If it’s possible to wait, then the longer you wait after having taken out a cash advance to file, the better.  Many people facing tough financial situations are already feeling stressed, there is no need to add something else to the mix.

Cash Advances and Chapter 7 Bankruptcy

Since a Chapter 7 bankruptcy is different than a Chapter 13, and not a repayment plan, we will focus on a couple of different points.  If the cash advance was made within 90 days of filing, the debt is most likely not going to be wiped out in a Chapter 7 bankruptcy.  First of all, it looks suspicious to the courts when a recent cash advance was made before the filing.  This may also pose a problem with the creditor who may decide to pursue an adversary proceeding for a cash advance that was made around the same time as the filing of the bankruptcy.  An adversary proceeding is also known as a lawsuit in bankruptcy court.  If the cash advance was made well past the 90 days, then there is a possibility of the debt being wiped out.  This would depend on a couple of things, timing and amount.  A large cash advance taken out shortly before filing bankruptcy is obviously going to look suspicious.  The courts are not only going to look at the amount, but also the timing between the actual withdrawal and filing of the bankruptcy.  As mentioned above, the longer you are able to wait to file the bankruptcy, the better.

If you have any questions about any cash advances you have taken out in the last year, you should speak with your bankruptcy attorney. If you are contemplating filing bankruptcy, it is best not to take out any cash advances.

How Does Chapter 7 Bankruptcy Affect My Credit?

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Chapter 7 bankruptcy will likely make your credit score drop initially.  After an initial drop we have seen our clients steadily rebuild their credit scores to the level, or better, of many of their friends or family members.  Bankruptcy allows you to wipe out your debt so you can start fresh and have a legitimate opportunity to have your fresh financial start.  Most people find it incredibly difficult, if not impossible, to improve their credit when they have large amounts of debt.  Chapter 7 bankruptcy will wipe out the majority of this debt and allow you to reestablish your credit worthiness.

How Does Chapter 13 Bankruptcy Affect My Credit?

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Contrary to what you may hear from some people, there is either little or no difference to your credit score based upon you filing a Chapter 7 bankruptcy or a Chapter 13 bankruptcy.  You should first understand the difference between your credit score and your ability to obtain credit. Often, these words are used interchangeably and confusion can occur. Your credit score is the number the credit reporting agencies assign to your credit. It is based on your history of making payments on your debts. Your ability to obtain credit is based on your ability to make payments in the future and is determined by your income and your debts. If your debts exceed your ability to make payments, you may be unable to obtain credit even if you have consistently paid your debts on a timely basis. In other words, you may have a good credit score yet be unable to purchase a car because you have too much debt. Filing Chapter 13 bankruptcy will most likely reduce your credit score in the short-term. However, filing bankruptcy also eliminates many of your debts and may improve your ability to obtain credit in the future.