When to Stop Using Credit Cards Before Filing Bankruptcy

Millions of Americans are drowning in credit card debt.  High interest rates and exorbitant fees have made it all but impossible for many consumers to pay off their credit cards.   For these consumers, filing bankruptcy is arguably the best method for reducing or altogether eliminating credit card debt. 

Dischargeability of Credit Card Debts

Generally, credit card debt is dischargeable in bankruptcy.  Nothing in the Bankruptcy Code mandates a timeframe for discontinuing credit card use before filing bankruptcy.  However, a creditor may object to the discharge of credit card debt if: 

• The debt is $500 or more, owed to a single creditor for the purchase of luxury goods within 90 days of the date the bankruptcy case was filed;
• The debt is $750 or more, owed to a single creditor for a cash advance obtained within 70 days of the date the bankruptcy petition was filed; or
• The money owed was obtained under false pretenses, by making false representations, or by actual fraud. 

The fact that the Bankruptcy Code does not specifically require a debtor to stop using credit cards prior to filing bankruptcy will not prevent a creditor from filing an Objection to Discharge.  In fact, there are certain red flags that creditors generally look for in deciding whether to object to the discharge of credit card debt.  These red flags include: 

• An increase in credit card use shortly before filing;
• Obtaining new credit cards shortly before filing;
• Making larger than normal cash advances in the months before filing;
• Using the credit card to pay for vacations;
• Using one credit card to make the payments on other credit cards;
• Exceeding the credit limit;
• Using the credit card while unemployed or without a reasonable expectation of making the payments; and
• Making charges after consulting with a bankruptcy attorney. 

Alleging that a debtor has committed fraud is not enough for a creditor to win objection to the dischargeability of a credit card debt.  A creditor must file an adversary proceeding and introduce evidence that suggests the debtor engaged in fraudulent or dishonest behavior to obtain the credit card or in using it. 

Getting Legal Help

If you are concerned about whether your credit card debts will be discharged, you should hire a qualified bankruptcy attorney.  Based on your use of the credit card and other relevant facts, your bankruptcy attorney will advise you of the likelihood of a creditor filing an objection to discharge and will represent you in negotiating a settlement with the objecting creditor or in contesting the objection, if necessary.