Credit Card usage before Bankruptcy

A typical question we hear revolves around credit card usage before bankruptcy. Specifically, individuals want to know how using a credit card with the months leading up to filing for bankruptcy protection can affect the filer’s ability to discharge the debt. This is something that is very strongly discouraged as getting cash advances from credit cards, or using your credit card to charge luxury items may be exempted from discharge during your bankruptcy, leaving you stuck with the bill. The U.S. Bankruptcy court generally considers purchases over $675, “luxury items”.

Intent to Pay

If you use your credit card with no intent to pay for the items, the law presumes that these charges are fraudulent. Items obtain using fraud are not dischargeable in a bankruptcy, and it is much easier for a creditor to prove in a court of law that you never intended to pay for luxury items that were purchased using a credit card within 90 days of filing bankruptcy. The only way that this type of purchase can truly be discharged, is if an unforeseen life event pushed you into bankruptcy after making the purchases.

Cash Advances

When filing for bankruptcy protection, any cash advances totaling more than $950 within 70 days of bankruptcy may be exempted from discharge as well. The total amount must have come from one creditor and must have been used for consumer purposes and not business related. If these two standards aren’t met then the debt may be dischargeable.

Credit Card Debt in Bankruptcy

Credit Card debt in bankruptcy is typically the lowest priority for repayment, however, any debt incurred with your credit card debt by fraud will have to be repaid. It’s important to note that even if you didn’t intend to defraud your creditors by spending money on your credit card before a bankruptcy, the court may be inclined to believe that you have committed constructive fraud and will require you to pay back the credit card debt.

If you have made a number of purchases or taken out cash advances on a credit card it is typically a good idea to stop charging and wait before declaring bankruptcy. It’s important to discuss your credit card debt thoroughly with your Sacramento bankruptcy attorney before filing, in order to have a greater chance of your bankruptcy case being confirmed. Additionally, it’s important to be completely honest about your debt with your bankruptcy lawyer, as well as, the bankruptcy trustee in order to prevent your bankruptcy case being dismissed completely.