Can I Use my Credit Cards Prior to Filing for Bankruptcy?

If you use your credit cards shortly before filing for bankruptcy, your credit card company may have grounds to argue that the recently incurred charges should not be eliminated by your discharge. In general, whether a credit card company will ask the court to declare the new charges nondischargeable depends on:

  • when you incurred the new debt
  • what you purchased, and
  • the amount of the new charges.

Fraudulent Debts Are Not Dischargeable in Bankruptcy

In general, you can’t use bankruptcy to eliminate debts obtained through fraud, misrepresentation, or false pretenses. If a credit card company wants to have your debt declared nondischargeable, it must file a complaint (called an adversary proceeding) with the court.

In order to prove fraud, the credit card company typically has to show that you had no intention of paying back the debt at the time you incurred the new charges. As a practical matter, this is difficult to prove in bankruptcy court. However, if you purchase luxury items on credit or take out cash advances immediately before filing for bankruptcy, those debts are presumed to be nondischargeable (discussed below).

Luxury Items Purchased on Credit Within 90 Days of Bankruptcy

If you incur a debt of more than $675 (in aggregate and owed to a single creditor) to purchase luxury goods or services within the 90-day period preceding your bankruptcy filing, it is presumed to be nondischargeable. (Figure current for three years as of April 2016.)

Since the debt is presumed to be fraudulent and nondischargeable, this means that the credit card company doesn’t have the burden to prove fraud. It is your responsibility to rebut the presumption of fraud and show the court why the debt should be discharged. If you use your credit card to purchase expensive luxury items shortly before filing for bankruptcy, the credit card company is much more likely to contest your discharge in bankruptcy court.

What Are Luxury Goods and Services?

In general, luxury goods and services are things that are not reasonably necessary to support you and your dependents. For example, if you charge an expensive vacation to your credit card just before filing for bankruptcy, it will likely be considered a luxury item.

Cash Advances Obtained Within 70 Days of Bankruptcy

In addition to luxury items purchased on credit, cash advances totaling over $950 in aggregate obtained during the 70 days prior to your bankruptcy filing are also presumed nondischargeable. This means that if you take out cash advances prior to filing your case, you risk not being able to discharge that debt in your bankruptcy. (Figure current for three years as of April 2016.)

What Can You Do if You Already Incurred the New Charges?

If you already incurred new charges on your credit card or took out cash advances, consider delaying your bankruptcy filing until the presumption period has passed. In general, the longer you wait, the less likely it is that the credit card company will file an objection to your discharge.

However, keep in mind that the credit card company can still object to your discharge even after the presumption period has passed. But it will have to prove fraud without the benefit of the presumption. When determining whether a debt should be discharged, bankruptcy courts typically consider numerous factors such as:

  • when the charges were incurred
  • whether you made any payments to the creditor since incurring the debt, and
  • whether you talked to a bankruptcy attorney prior to using your credit cards.

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