Using Credit Cards Before Bankruptcy

You may have wondered whether you should continue to use your credit cards if you are planning to file for bankruptcy. The answer is clearly, no. Any experienced bankruptcy attorney will advice you to not continue to use credit cards if you are filing for bankruptcy. If you do continue to use any credit card after planning to file for bankruptcy, you should assume that you will be potentially be paying that amount back to the creditor.

What Happens If you Continue to Use Your Credit Cards?

Under the bankruptcy code the creditor has a number of options if you engaged in recent credit card use or obtained a cash advance from your credit card before filing for bankruptcy. If you use your credit cards prior to filing for bankruptcy there are mainly two possible consequences that can result

Debt is Nondischargeable- Recent credit card use may result in that debt not being discharged in bankruptcy. Recent credit card activity that involves large charges, charges for unnecessary items, and large balance transfers can trigger a creditor to file an adversary proceeding in your bankruptcy case. Under the bankruptcy code the following items are presumed nondischargeable:

• Debt over $500 incurred for luxury goods or services within 90 days - If you charged more than $500 on a credit card for luxury goods and services within 90 days of filing for bankruptcy then it is presumed to be nondischargeable debt. This means that the debt may not be discharged in bankruptcy and you may be required to pay the creditor back after bankruptcy. This means no last minute shopping sprees in which you buy that dress you always wanted, the Flat Screen TV you dreamed of or the sports equipment you just had to have.

• Cash Advances Totaling More Than $750, Incurred within 70 days- If you obtained cash advances that totaled more than $750 within 70 days of filing for bankruptcy then this debt is presumed nondischargeable. Again you may be responsible for repaying this amount back even after your bankruptcy.
• Fraud-Use of any credit card where you clearly do not intend to pay it, is considered fraud and potentially non-dischargeable in bankruptcy.
  

Denied a Bankruptcy Discharge- If your credit card use exhibits, an intentional use without an intent to pay back the debt then the trustee or US. Trustee may object to the discharge of your bankruptcy case on the basis of bad faith. If you are denied a discharge, then you are still legally responsible for repaying all debts that you owed prior to filing for bankruptcy. Denial of a discharge on the basis of recent credit card use is rare but if your spending pattern clearly shows bad faith you can be denied a discharge.

If you have had recent credit card use, then you may want to hold of filling for bankruptcy right away. The longer the period between your use of the credit card and the bankruptcy filing, the less likely that a creditor will challenge the debt. You should also make some payments toward the recent charges. This will show your good faith intent to pay the debt.

Case Dismissed - The trustee or U.S. Trustee can seek to have your case dismissed if your intentionally used credit cards prior to filing bankruptcy with not intent to pay it back. The dismissal of your case has a similar effect to being denied a discharge. You are still responsible for repaying your debts if your bankruptcy case is dismissed.

It is very rare that recent credit card use triggers a case dismissal or a denial of discharge. It is only when the credit card use was severe (incurring large charges in a short time) and shows a clear intent to use without paying anything back that it may occur.

From Southern California Law Advocates: Riverside Bankruptcy Attorney