Do Not Run Up Your Credit Cards Before Bankruptcy

Chapter 7 bankruptcy is an excellent option for those who have accumulated large credit card debts. But if you run up your credit cards before bankruptcy, you may be found to have committed a form of bankruptcy fraud. When you file for bankruptcy, credit card companies carefully review all of your most recent purchases. Do not run up your credit cards before bankruptcy.

Do Not Run Up Your Credit Cards Before Bankruptcy

The applicable Bankruptcy Code is 11 U.S.C. 523, which excepts certain debts from discharge in bankruptcy. Here are a few guidelines:

Do Not Purchase “Luxury Goods or Services”

Don’t purchase “luxury goods or services” within 90 days of filing bankruptcy. Debts considered to be luxury goods and aggregating more than $500 are nondischargeable, which means that the debt will survive the Chapter 7 bankruptcy discharge, and you will still owe the debt. Credit card companies routinely review charges upon notice of a bankruptcy filing. And they will file a nondischargeability action if you purchase luxuries within 90 days of your filing.

Do Not Take Out Cash Advances

Don’t take out cash advances on your credit cards within 70 days of filing bankruptcy. Cash advances aggregating more than $750 from a single creditor within 70 days of your bankruptcy filing are presumed to be nondischargeable. Even if you take out less than this amount, credit card companies and bankruptcy trustees alike examine cash advances with special scrutiny. And they may be determined to be nondischargeable even if you take less than $750. You should not take any cash advances from credit cards at all within several months before filing a Chapter 7.

Use Credit Cards Only for “Reasonably Necessary” Purchases

You may use credit cards for purchases reasonably necessary for the support or maintenance of yourself or your family. Credit card purchases made within 90 days of filing bankruptcy that are necessary for the health and welfare of you or your family will be discharged. That means the Chapter 7 discharge eliminates those debts without any issues. Food and groceries, prescriptions and medical supplies, gas, and other reasonable purchases can therefore be discharged.

Do Not Run Up Your Credit Cards Before Bankruptcy

You can’t borrow your way out of debt. Once you have made the decision to file for Chapter 7 bankruptcy protection, stop your using your credit cards to avoid being stuck with the debts you rack up before filing. Living without credit can be hard once you’ve become accustomed to it. If you are considering filing bankruptcy, call Lee Legal for a free consultation.

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