Often clients contemplating filing Chapter 7 or Chapter 13 bankruptcy ask “Can I continue to use my credit cards prior to filing bankruptcy?” My answer is always to stop using your credit cards if you are going to be filing bankruptcy in the foreseeable future. If you have already made purchases on credit and need to file bankruptcy immediately you can anticipate having to pay back certain charges.
(a) A discharge under section 727, 1141, 1228 (a), 1228 (b), or 1328 (b) of this title does not discharge an individual debtor from any debt—
(I) consumer debts owed to a single creditor and aggregating more than $500 for luxury goods or services incurred by an individual debtor on or within 90 days before the order for relief under this title are presumed to be nondischargeable. 11 U.S.C. § 523(a)(2)(C).
Therefore, if you incur more than $500 of luxury goods within 90 days prior to filing bankruptcy, there is a presumption those debts are non-dischargeable and will have to be paid back. However, if you have purchased something on a credit card within 90 days of filing that exceeds $500 and is necessary for the support of you or your family, you most likely will not have to repay the debt.
(II) the term “luxury goods or services” does not include goods or services reasonably necessary for the support or maintenance of the debtor or a dependent of the debtor. 11 U.S.C. § 523(a)(2)(C)(ii)(II).
Examples of goods or services reasonably necessary for the support or maintenance of the debtor or a debtor’s dependent(s) may include groceries, electricity, gas, etc.
Credit use outside of 90 days may also be an issue in your bankruptcy case. A credit card company may challenge dischargeability of its debt if the debtor incurred credit card charges with no reasonable expectation of repayment. For example, if a debtor has no source of income in the year prior to filing and survived off of credit cards or cash advances.
Can I Take a Cash Advance Prior to Filing Bankruptcy?
Under 11 U.S.C. § 523(a)(2)(C), there is a presumption of nondischargeability for cash advances more than $750 taken within 70 days prior to filing bankruptcy.
(III) cash advances aggregating more than $750 that are extensions of consumer credit under an open end credit plan obtained by an individual debtor on or within 70 days before the order for relief under this title, are presumed to be nondischargeable;
If you have any questions regarding recent credit card use and bankruptcy please contact the experienced Phoenix bankruptcy attorneys of Ariano & Reppucci, PLLC.