Using Credit Cards Just Before Filing

Question: I’m considering filing bankruptcy. When do I have to stop using my credit cards?

Answer: You should stop using your credit cards no later than when you decide that you will file bankruptcy and not repay the debt. However, the Ninth Circuit Court recognizes that you may change your mind or your circumstances may change any time up to the point in which you actually file bankruptcy. Therefore, you may be able to continue using your credit cards until just before your bankruptcy petition is filed.

Using a credit card when you have no intention of repaying the debt is an action done under “false pretenses, a false representation, or actual fraud.” In such cases the debt may be found to be “nondischargeable” and continue even after you receive a bankruptcy discharge.

In order to determine if a debt is nondischargeable a credit can file a lawsuit, an adversary complaint, against you in the bankruptcy court. The creditor will have to prove 1) that you intended to fraudulently obtain credit card debt and 2) that the creditor was justified in relying on your promise to repay the debt. The court will look at the “totality of the circumstances” surrounding the manner in which you incurred the debt, and then make a ruling.

Special Rules for Consumer Debt and Credit Card Advances

The following debts of an individual debtor are presumed to be nondischargeable:
1) Credit card charges to a single creditor totaling more than $550 for “luxury goods or services”* purchased on or within 90 days before your bankruptcy filing; and
2) Cash advances from credit cards totaling more than $825 on or within 70 days before your bankruptcy filing.

If you have a debt that is presumed to be nondischargeable the creditor will not have to prove that you intended to fraudulently use the card or that they relied on your promise to repay the debt. It will be up to you to prove that you reason for using the card was honest.
You may avoid the presumption of nondischargeability by providing evidence that you experienced a sudden change in circumstance or that you did not plan on filing bankruptcy until after the transaction took place.

*Luxury goods and services do not include goods or services that are reasonably necessary for support and maintenance of you or your dependents.

Disclaimer: This article is intended for informational purposes only and no attorney-client relationship is formed or intended.