Can You Use Your Credit Cards Before Filing Bankruptcy?
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Using Credit Cards Before Bankruptcy

If you don't have any cash on hand, but you have to make basic purchases, credit cards may be your only choice. And if you're overextending yourself on credit, you may want to consider bankruptcy to help eliminate your credit card debt.

Bankruptcy courts, though, tend to frown on frivolous credit card use immediately before a bankruptcy filing. In fact, certain purchases may constitute bankruptcy fraud, depending on the nature and timing of the transaction.


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Restrictions on Using Credit Cards Before Bankruptcy

Different bankruptcy courts may respond in different ways to credit card use right before bankruptcy. If people need to use credit for basic expenses, such as food and shelter, they may have no choice but to use plastic.

And some bankruptcy judges may forgive filers who make necessary purchases right before bankruptcy. But filers must be very careful about using credit when they do not intend to pay the money back.

If a court finds that a person uses credit fraudulently before bankruptcy, not only will the credit card debt be non-dischargeable, the guilty party may also be convicted for criminal fraud.

To help guide bankruptcy filers, federal and state bankruptcy law does contain a specific restriction on using credit cards before bankruptcy:

  • Section 523 of the Bankruptcy Code prevents a filer from discharging non-essential credit card expenses of more than $500 if the charges were placed on the card within 90 days before the person files for bankruptcy.
  • The term "non-essential" refers to luxury goods, which are usually seen as items that are not needed for everyday life.
  • So, if you've bought an expensive luxury item on credit, you may want to wait at least 90 days before filing bankruptcy, although an attorney can help you weigh the pros and cons.

The bottom line is that filers need to be careful about making extravagant credit card purchases in the three months leading to bankruptcy. Bankruptcy may help you eliminate your credit card debt, but it’s wise not to test the court by throwing lavish expenses on your card.

For more information about using credit carefully before filing bankruptcy, contact a lawyer today.

To connect with a local bankruptcy lawyer for a free consultation, fill out the quick case review form below.


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