young woman using credit card for online shoppingCredit card debt is generally dischargeable in a Chapter 7 bankruptcy. However, if you are considering filing for bankruptcy and run up your credit cards to the maximum credit limit shortly before you file, you could have problems with your bankruptcy. Your credit card debt could become non-dischargeable, and you may still have to pay these debts.

How Running Up Your Credit Cards Could Affect Your Bankruptcy

If you max out your credit cards and then file for bankruptcy, it could appear that you did so to defraud your creditors. Debts that are obtained through fraud, misrepresentations, or false pretenses are not discharged in bankruptcy.

The credit card company would have to file a complaint to have their debt found non-dischargeable under your bankruptcy proceeding. They would have to prove that you did not intend to pay back their debt when you ran up your credit card balances—which is not always easy to show. However, if they are able to establish this as fact, the bankruptcy judge could find that their debt is not discharged, and you will have to pay it off.

Special Rules for Luxury Goods and Cash Advances

There are special bankruptcy laws that make it harder to discharge purchases of luxury goods or cash advances you took out in the months before your bankruptcy filing. They would apply in your bankruptcy case even if you did not max out your credit cards. Here are the rules on the discharge of these debts:

  • Luxury goods and services. It is presumed to be fraud to use a credit card to purchase luxury goods or services of more than $725 within 90 days of bankruptcy (filed on or after April 1, 2019). Luxury goods are broadly defined under bankruptcy law to include anything not necessary to support the purchaser or their dependents.
  • Cash advances. Any cash advances that total $1,000 or more taken out within 70 days of filing for bankruptcy would be assumed to be fraudulent and not discharged in bankruptcy (filed on or after April 1, 2019).

How to Avoid Non-Discharged Credit Card Debt in Your Bankruptcy

Ideally, you should stop using your credit cards at least 90 days or more before you file for bankruptcy. If you have used your credit cards more recently and need to file for bankruptcy, you should consult with a knowledgeable bankruptcy attorney immediately. They can help you develop a strategy to avoid creditors challenging the discharge of their debt and to fight this type of lawsuit in your bankruptcy.

Are You Considering Filing for Bankruptcy?

If you feel bankruptcy is the best option for your financial situation, you need to speak with an experienced bankruptcy lawyer as soon as possible. Please contact us online or call our office directly at 888.348.2616 to schedule your free consultation.