I had some last minute expenses so I decided to put some big charges on my credit card. Should I wait until I have paid the card off to file for Chapter 7 bankruptcy?
If you put large charges on your credit card shortly before filing
for bankruptcy, your credit card company may argue that the charges
should not be wiped out by your bankruptcy discharge. You can avoid
problems in this situation by delaying your bankruptcy filing.
on to learn more about why it may be in your best interest to delay
filing your bankruptcy if you recently used your credit cards.
(For more on issues that arise regarding your credit cards in bankruptcy, see Credit Card Debt & Bankruptcy.)
law states that any debt you obtained by fraud, misrepresentation, or
false pretenses is nondischargeable in bankruptcy. For bankruptcy
purposes, this includes credit card charges or cash advances you never
intended to pay back when you used your card.
Generally, it is
very difficult for credit card companies to prove fraud in bankruptcy
court because they must prove you had no intention to pay back the debt
at the time you incurred it.
However, in certain circumstances the law presumes
that your credit charges or cash advances were fraudulent. In these
situations, your charges would not be discharged unless you can prove
otherwise. Credit card charges and cash advances are presumed fraudulent
and nondischargeable under the following circumstances:
Charges for luxury items within 90 days of bankruptcy.
If you charge more than $650 on a single credit card for luxury goods
or services within the 90-day period prior to filing your bankruptcy,
those charges are presumed to be nondischargeable. Luxury items include
goods and services not reasonably necessary for your support or
Cash advances within 70 days of bankruptcy.
Similarly, if you obtain cash advances of over $925 in aggregate during
the 70 days preceding your bankruptcy filing, those advances are also
a credit card company wants to have your recent charges declared
nondischargeable, it must file a complaint in bankruptcy court and
object to your discharge (this is called an adversary proceeding). If
you incurred the charges in question during the presumption period, you
must prove that the charges were not fraudulent and they should be
discharged, which makes the credit card company’s job much easier.
(To learn more, see Adversary Proceedings in Bankruptcy.)
you delay your bankruptcy until the presumption period has passed, the
burden shifts to the credit card company to prove fraud (which is
normally difficult to do). However, even if you are beyond the
presumption period, the court can still consider factors such as the
length of time between the charge and your bankruptcy, payments you
made, or if you consulted a bankruptcy attorney before charging your
Generally, the longer you delay your bankruptcy, the less
incentive the credit card company will have to challenge your discharge.
However, not charging your credit cards after speaking with a
bankruptcy attorney and making some payments on your recent charges can
also help your case.
For more articles on when to file your bankruptcy petition, see our Timing for Bankruptcy Filing topic area.
by: Baran Bulkat, Attorney