CAN YOU RUN UP YOUR CREDIT CARD BALANCES BEFORE YOU FILE FOR BANKRUPTCY?
You have to be very careful about running up a lot of credit card debt before you file for bankruptcy. If you do this, it could be used as evidence against you that you intended to defraud your creditors, and you could be prevented from legally wiping out your bills.
Another red flag is created if you charge up luxury goods or take out cash advances on your credit card shortly before filing for bankruptcy.
Here are the general rules that apply in these situations:
- If you use your credit cards within 90 days before filing bankruptcy for luxury goods and services totaling more than $725, fraud is presumed,
- If you use your credit cards for cash advances totaling more than $1,000 within 70 days before filing bankruptcy, fraud is presumed.
If your bought things that are considered to be luxury items or non necessity type items, or if you took out cash advances, you'll probably have to show that you didn't have any fraudulent intent. You'll probably have to prove that you really intended to repay the debt when it was incurred or that you didn't intend to file bankruptcy. You might even have to prove both of those things.
Keep in mind though that there is an important difference between luxury items and necessities. Necessary credit card purchases made within the 90 day period before filing for bankruptcy can legally be discharged.
The main point I want to get across here is that any consumer who is intending to file for bankruptcy should be very very careful about using their credit cards for purchases of so called luxury items or taking out cash advances during the 90 days period before the bankruptcy is actually filed. A knowledgeable bankruptcy attorney can often advise his/her clients about pre bankruptcy filing ideas so that the client doesn't get into trouble by running afoul of some of these legal technicalities.
If you are considering the possibility of filing for bankruptcy, it's usually best to consult with an attorney in advance, before the pressure that the creditors put upon you really gets intense. This way you will be able to do proper bankruptcy planning so that you can be pretty sure that you will be able to completely wipe out all of your debts.