Bankruptcy

When Should I Stop Using My Credit Cards If I'm Planning on Filing for Bankruptcy?

By Cara O'Neill, Attorney
Find out when you can—and can’t—use a credit card shortly before filing for bankruptcy.

The best practice is to put away the credit card as soon as you consider filing for bankruptcy. Why? Because even though you’re allowed to charge necessary items in an emergency, you don’t want to go too far and find yourself accused of committing actual or presumptive fraud. Here’s how it works.

Actual Fraud

Once you realize that you can’t afford to pay for a purchase bought on credit—or don’t intend to pay the bill when it comes due—you open yourself up to an accusation of fraud. If you file for bankruptcy, and your creditor proves that you committed fraud, you’d likely be denied a discharge of the debt (you’d have to pay it). Worse yet, if the matter was egregious enough, you could find yourself facing criminal fraud charges. In bankruptcy court, obtaining money or property by fraud is punishable by fines up to $250,000, 20 years in prison, or both. (18 U.S.C. §§ 152, 1341, 1519, 3571 (2016).)

Presumptive Fraud

In bankruptcy, using a credit card to purchase luxury goods totaling $675 or more during the 90 days before filing for bankruptcy is presumptively fraudulent (as of April 1, 2016). “Presumptive fraud” means that you’ll automatically lose a case filed against you unless you can successfully dispute the charges. Luxury items include things that you don’t need to live. For instance, a new set of golf clubs, a snowboard, and jewelry would all be luxury items.

Exception: Necessary Purchases

An exception exists, however. You can charge necessary things, such as food, gasoline, or clothing from a discount store. For instance, buying wood or propane to heat your house during the winter shouldn’t be problematic. The same would hold true if you needed to charge car repairs to get to work.

Before making any credit card purchases shortly before bankruptcy, you should seek the advice of a local attorney. A lawyer in your area will understand how the local bankruptcy court responds to allegations of fraud.

(For more information, see What Happens to Debt Resulting from Fraud in Bankruptcy?)

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