Can I run up my credit card balances before I file bankruptcy?

If you run up your credit card balances right before filing for bankruptcy, the debt might not be wiped out by your bankruptcy.

Updated: March 20, 2019

You can generally discharge credit card debt in bankruptcy. Whether your credit card debt is $1,000 or $100,000, the bankruptcy discharge you receive at the end of a successful bankruptcy case will wipe out your liability on the debt.

But if you rack up credit card debt with fraudulent intent, it most likely won't be discharged in bankruptcy. Charging your card with no intention to pay the debt—especially when you know you'll be filing for bankruptcy—is almost always considered to be fraud.

Using Your Credit Card When You Plan to File for Bankruptcy

Running up your credit card balances when you plan to file bankruptcy fairly clearly indicates that you intend to defraud your creditors. If you do so, the credit card company can file a nondischargeability complaint in your bankruptcy case, asking the court to declare the debt nondischargeable. If the court rules in the credit card company's favor, you’ll have to repay the debt.

For more information about nondischargeability complaints, see Nondischargeability Complaints in Bankruptcy.

Charging Luxury Goods or Taking Out Cash Advances Before Bankruptcy

Even if you run up the balances on your credit cards without actually intending to defraud the creditor—for example, if you intend to repay every cent—you might still get in trouble. Special rules apply if you used the credit cards for luxury goods and services, or if you took out cash advances, and you did so within a couple of months before filing your case.

Here are the rules:

  • If you use your credit cards within 90 days before filing bankruptcy for luxury goods and services aggregating more than $725, fraud is presumed (as of April 1, 2019; $675 for cases filed between April 1, 2016, and March 31, 2019). (11 U.S.C. § 523(a)(2)(C)(i)(l).)
  • If you use your credit cards for cash advances totaling more than $1,000 within 70 days before filing bankruptcy, fraud is presumed (as of April 1, 2019; $950 for cases filed between April 1, 2016, and March 31, 2019). (11 U.S.C. § 523(a)(2)(C)(i)(l).)

If your purchases fall into the luxury category, or if you took out cash advances, you’ll have to show that you didn’t have fraudulent intent, either by providing evidence that you intended to repay the debt or that you didn’t intend to file bankruptcy. Typically, you should show both.

The Differences Between Luxury and Necessary Purchases

Luxury goods and services aren’t needed to maintain employment or a household. Why is this distinction important? Because the rule doesn’t apply to necessary goods and services. Necessary credit purchases will still qualify for a discharge.

Charges for heat during the winter and gasoline to get to work should be dischargeable because they’re necessary items. Also, the court would likely consider unbranded athletic shoes for a child’s physical education class a necessary expense. By contrast, the court would likely have a different view if you charged an expensive pair of branded athletic shoes or designer heels. These charges would probably be considered luxury in nature.

The Credit Card Company Must Challenge the Discharge of the Debt

In any case, your credit card debt will be discharged unless the credit card company files a nondischargeability complaint. If the credit card company fails to notice your card activity or does nothing, the debt will be discharged. You can learn more in Adversary Proceedings in Bankruptcy.

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.

To learn more, see Credit Card Debt and Bankruptcy.

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