Many financial problems arise for people who have found themselves considering bankruptcy. A couple of checks that have bounced just prior to filing could very well be part of the problem.
Will bankruptcy take care of bounced checks? For the most part, yes.
This is really important because for people who have bounced checks, they can often face some of the most egregious threats on the part of creditors. Criminal charges are often threatened for very small amounts, which can be very intimidating for a person already in enough trouble to consider bankruptcy.
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Do not let the threats from creditors claiming you will be charged with a crime bother you. They resort to such threats because they know they probably have no chance of ever collecting after bankruptcy.
A check that bounces will not be discharged only if the creditor can prove fraud, false pretenses or material misrepresentation and does so in bankruptcy court. The creditor will have to pursue a judicial ruling from the bankruptcy court demonstrating all the elements of common law fraud.
First, the creditor must show the debtor obtained money, property, services or credit. Using this standard, if you write a check that was intended to pay a debt, like a credit card, and that check bounces, then this element is not met.
This is because you did not receive money, property, services or credit. This bounced check will be discharged. If you write a check and receive legal services or some other product, then the creditor will have met its burden on this element.
Secondly, the creditor must show that the bad check was written along with intentionally and materially false statements made by the debtor. This is very difficult because so many checks are written without any accompanying statements at all.
If you are in line at the grocery store writing a check you know is bad and say "I swear I will have money in the bank to cover this check", the creditor will still not meet its burden. It will have to show that you intended to mislead the creditor through this statement.
Perhaps a creditor would be able to show a false statement if it was made over the phone and the creditor recorded it. Otherwise, a creditor will most likely fail to meet this element.
A creditor would next be required to show that the debtor knew the check would bounce when they wrote it and intended that it not be paid. Many people write checks with insufficient funds in their account the moment they write the check, but intend to replenish their account in time to pay for the check.
If this is the case, then the creditor will not be able to stop this debt from being discharged because the debtor did not have the requisite intent at the time of the check.
The high burden for creditors to prove fraud is why so many of them decide not to challenge these debts in bankruptcy. It makes no sense for them to fight so diligently to recover what is almost certainly a nominal sum.
But if the creditor makes it this far, they still have another hurdle to overcome. An additional requirement is that the creditor must show that statements that were made by the debtor were relied upon by the creditor. This reliance needs to be justifiable.
If someone promised they would pay you by writing a check that was post-dated. If a creditor writes his own check that depends upon the debtor's check clearing, then the creditor has relied upon the statements of the debtor.
Again, however, the reliance needs to be justifiable so if the statements made by the debtor were during a time of obvious inebriation, the creditor would fail to meet its burden.
If you are being contacted by a third-party debt collection agency demanding payment on a bad check, it is almost certain that they did not justifiably rely upon any statements made by the debtor when the check was written.
Most checks that bounced prior to bankruptcy are discharged in bankruptcy. The burden is on the creditor to prove each element of fraud in order to prevail. These requirements make it very likely a creditor will not sue on a bad check unless it is for a very high amount that makes the legal costs worth it.
Don't expect that they won't resort to harassment and threats and other ways to get you to pay up. Creditors often continue to harass, threaten and intimidate debtors even after bankruptcy has been filed. Don't be afraid. Most people who are in bankruptcy are not the type of people their creditors believe they are.
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