I just put some big charges on my credit card. Should I wait to file for bankruptcy?

Learn what you should know about filing for bankruptcy after recently using your credit cards.

Question

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?

Answer

If you put large charges on your credit card shortly before filing for bankruptcy, your credit card company might argue that the charges shouldn’t be wiped out by your bankruptcy discharge. You might be able to avoid problems by delaying your bankruptcy filing—especially if you weren’t planning on filing for bankruptcy when you charged the purchase. However, if you knew you couldn't pay when making the purchase, and never planned to make good on the obligation, you could run into trouble.

Read on to learn more about the risks of filing for 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.

When Your Credit Card Charges Might Be Nondischargeable

Bankruptcy law states that any debt 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 can be 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 credit card company has an easier time of it because the law presumes that your credit charges or cash advances were fraudulent. In these situations, your charges wouldn’t 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 $725 (as of April 1, 2019) on a single credit card for luxury goods or services within the 90-day period before 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 $1,000 (as of April 2016) in aggregate during the 70 days preceding your bankruptcy filing, those advances are also presumed nondischargeable.

The Presumption of Nondischargeability

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 in what is known as 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 shouldn’t be discharged, which makes the credit card company’s job much easier.

Learn more about adversary proceedings and fraud defenses in bankruptcy.

Once the presumption period has passed, the burden shifts to the credit card company to prove fraud. Keep in mind that it’s never a good idea to attempt to circumvent the rules. The court could view such actions as evidence of fraudulent intent.

Also, even if you’re 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.

The bottom line is that saving a few dollars by wiping out a luxury charge in a bankruptcy case isn’t worth the potential problem you could bring on yourself. Not using your credit cards after speaking with a bankruptcy attorney, or once you realize that you need to file for bankruptcy, is the most prudent course of action.

For more articles on when to file your bankruptcy petition, see Timing for Bankruptcy Filing.

Updated: March 28, 2019

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