Dealing With Credit Cards Just Before Filing Bankruptcy

Dealing With Credit Cards Just Before Filing Bankruptcy

It is commonly known among most consumers that you may discharge credit card debt in bankruptcy whether it totals $1,000 or $50,000. The bankruptcy discharge that you receive at the end of your bankruptcy case will remove your liability for the debt. However, anyone considering bankruptcy must be careful how they use credit cards before they actually file bankruptcy.

Putting charges on a credit card with no intention to pay the debt, especially when you know you will be filing a bankruptcy case is almost always considered fraud. Running up credit card balances when you plan to file bankruptcy fairly clearly indicates an intent to defraud creditors.

When this happens, a creditor such as a bank or the credit card company may file a nondischargeability complaint in the bankruptcy case, requesting that the court declare the debt nondischargeable. If a debt is nondischargeable, it must be repaid.

There are certain actions that a prospective bankruptcy filer may take before filing bankruptcy that will be presumed as fraudulent. This makes it fairly simple for a bank or credit card company to challenge the dischargeability of a debt if the creditor can claim, or presume fraud automatically.

Debtors are presumed to have committed fraud in the two following ways. These dollar figures are current for cases filed between April 1, 2019, and March 31, 2022.:

  • If luxury goods are purchased within 90 days of filing for bankruptcy totaling $725 or more from one creditor, or
  • If a cash advance is taken within 70 days of filing for bankruptcy totaling $1,000 or more from a single creditor.

If any of the two actions listed above occurs, ie., you purchase luxury goods, or take out a cash advance, the burden will be on you to prove the lack of fraudulent intent. The best defense is to provide evidence that you intended to repay the debt or that you didn’t intend to file bankruptcy.

Notably, goods and services, such as rent, utilities, food, and modest clothing, are not considered luxury goods under federal bankruptcy law. Luxury goods and services are items that are not necessary to maintain employment or a household.

In most cases, credit card debt will be discharged unless the credit card company files a nondischargeability complaint. If the credit card company fails to notice illegal card activity or fails to do anything, the court will discharge the debt.

However, most credit card companies will carefully review all your purchases and other activity on the card that occurred before the bankruptcy filing. If you run up your credit card balances and then file bankruptcy, you run the risk of having to repay the debt. For most people, when possible, it’s best to stop using credit cards entirely if you’re having financial difficulties.

The Morrison Law Group has helped 8,000 people file bankruptcy and gain a fresh start. We’ve helped over 20,000 Utah residents deal with all types of financial difficulties caused by various severe and tragic events. Talk to us today about your Chapter 7 or Chapter 13 bankruptcy options. Call 801.456.9933 to schedule a FREE consultation. We have locations in Ogden, Logan, Sandy, and St. George to serve the residents of the counties of Weber, Cache, Salt Lake, Utah, Morgan, Davis, Washington, and surrounding areas.

Theron Morrison

Theron Morrison

Utah’s top bankruptcy and consumer protection attorney.