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.
Read 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.)
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 $675 (as of April 2016) 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 maintenance.
Cash advances within 70 days of bankruptcy. Similarly, if you obtain cash advances of over $950 (as of April 2016) in aggregate during the 70 days preceding your bankruptcy filing, those advances are also presumed nondischargeable.
If 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.)
If 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 card.
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.