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.

By , Attorney

Purposely running up credit card debt before filing for bankruptcy is a bad idea. The general rule is that you can discharge most 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. (Although watch out for jewelry, electronics and computers, and furniture and mattresses charges. The debt is likely secured by the purchase, and you'll probably have to return the item to the store.)

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 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.

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 took out cash advances 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 $800, fraud is presumed for cases filed between April 1, 2022, and March 31, 2025. (11 U.S.C. § 523(a)(2)(C)(i)(l).)
  • If you use your credit cards for cash advances totaling more than $1,100 within 70 days before filing bankruptcy, fraud is presumed for cases filed between April 1, 2022, and March 31, 2025. (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 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 luxurious and unnecessary. Read more about luxury purchases made just before bankruptcy.

The Credit Card Company Must Challenge the Discharge of the Debt

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 bankruptcy court will discharge your debt. You can learn more about adversary proceedings in bankruptcy here.

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 risk having to repay the debt. When possible, most people should stop using credit cards entirely if they're having financial difficulties.

Need More Bankruptcy Help?

Did you know Nolo has been making the law easy for over fifty years? It's true—and we want to make sure you find what you need. Below you'll find more articles explaining how bankruptcy works. And don't forget that our bankruptcy homepage is the best place to start if you have other questions!

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We wholeheartedly encourage research and learning, but online articles can't address all bankruptcy issues or the facts of your case. The best way to protect your assets in bankruptcy is by hiring a local bankruptcy lawyer.

Updated April 25, 2022

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