If you have decided to file for bankruptcy, you need to understand the dos and don’ts so you can get all your debt wiped out without issue. One thing you need to be aware of is proper credit card use.
While credit card debt is usually wiped out in Chapter 7 bankruptcy, recent questionable charges can be challenged by creditors. Using your credit card too much before you file can bring about fraud charges. Creditors may get suspicious if you use too much credit or make unnecessary purchases before filing for bankruptcy, so it is best to use your cards minimally or not at all, if possible. If you must use your cards, stick only to essentials like food, gas, or medication. This will help you avoid issues later during your case.
What You Need to Do
Courts and trustees closely examine recent credit activity to determine whether any charges were made in bad faith. Using credit just before filing can trigger objections from creditors and even lead to adversary proceedings to declare those debts nondischargeable.
Using credit cards right before filing can raise red flags with the court, especially if you use them for:
- Non-essential (luxury) charges of more than $725 made within 90 days of filing.
- Cash advances of more than $1,000 taken within 70 days of filing.
These kinds of charges may be seen as fraudulent. They may not even be discharged, which means you would still be responsible for paying them back.
Before filing for bankruptcy, it is safest to use credit cards only for true essentials. Any purchase that is not clearly a necessary expense may be viewed as a luxury and could raise concerns during your case.
It is also best to avoid cash advances entirely because they often face greater scrutiny. They come with much higher interest rates and may be treated differently. They are more likely to be challenged or excluded from discharge.
When you file for bankruptcy, creditors can challenge recent credit card charges if they believe you took on debt without intending to repay it. They do not need to prove intent, only the timing and amount.
A bankruptcy trustee will also review your recent financial activity, especially at the 341 meeting of creditors, to look for red flags like luxury spending, cash advances, or unfair payments to certain creditors. While you could possibly be charged with bankruptcy fraud, this is not common. Most people who file in good faith and limit spending to essentials have no issues. However, if you have used credit cards recently, it is wise to speak with a bankruptcy attorney for guidance.
Contact Us Today
Many people rely on credit cards, but using them for large purchases right before filing for bankruptcy can trigger alarms. Creditors may not discharge these debts, so you could still be on the hook.
You could be charged with fraud or misrepresentation. The Law Offices of Adam M. Freiman can guide you through the proper processes and address your concerns. Schedule a consultation today by filling out the online form or calling (410) 486-3500.
