Stopping nonessential credit card use before filing for bankruptcy protects you from fraud accusations and helps ensure your debts are fully discharged.
You'll want to stop credit card use as soon as you realize that you can't pay for your purchases and certainly as soon as you decide to file for bankruptcy. An exception exists, though: You can use a credit card for life necessities, such as food, rent, utilities, a winter coat, heating oil or propane, medical expenses, or needed car repairs, before filing for bankruptcy. These essential purchases aren't included in the presumptive fraud amounts discussed below.
However, if you need to rely on this exception, keep good records of your expenditures so you're prepared if a creditor questions your purchases. Now for the general rule.
The table below shows which purchases are generally safe and which can trigger a fraud presumption before bankruptcy.
|
Purchase Type |
Example |
Bankruptcy Risk |
|
Necessities |
Groceries, rent, utilities, medical care, needed car repairs |
Generally safe. Not counted toward the presumptive fraud limits, but keep receipts. |
|
Luxury goods or services |
Vacations, expensive shoes, video games, jewelry |
Presumed fraudulent if you charge more than $900 to one creditor within 90 days of filing. |
|
Cash advances |
ATM withdrawals or cash-equivalent transactions |
Presumed fraudulent if you take more than $1,250 from one creditor within 70 days of filing. |
|
Any charge outside these windows |
Any purchase, regardless of type |
Not automatically presumed, but a creditor can still prove actual fraud. |
In This Article
- Why You Should Stop Using Credit Cards Before Bankruptcy
- You Can Use Credit Cards for Things You Need Before Bankruptcy
- How Credit Card Companies Object to Bankruptcy Discharges
- When to Stop Paying Credit Cards Before Bankruptcy
- FAQs About Using Credit Cards Before Bankruptcy
- Next Steps in Your Bankruptcy Case
Why You Should Stop Using Credit Cards Before Bankruptcy
You'll want to stop using credit cards before bankruptcy because charges you make shortly beforehand can be presumed fraudulent. If found fraudulent, you'll remain responsible for that debt even after your case ends.
General Fraud
When you file for Chapter 7 bankruptcy, your creditors will examine your recent financial transactions looking for signs of fraud. Fraud is found anytime that you ran up bills with no intent to repay them, either because you knew you were going to file for bankruptcy or lacked the financial ability to make good on the charges. The creditor has the burden of proving general fraud.
Presumptive Fraud
If you make particular charges within particular time frames before bankruptcy, the charges are presumed to be fraudulent. The creditor doesn't have to prove intent. Instead, you must prove that you didn't intend to commit fraud. Only then must the creditor prove intent.
Presumptive Fraud Amounts
The presumptive fraud amounts apply if you incur the following:
- More than $900 to a single creditor for luxury goods or services within 90 days before you file for bankruptcy. Luxury goods, like expensive shoes, video games, or vacations, aren't things you need for everyday life.
- Cash advances of more than $1,250 from a single creditor during the 70 days before filing for bankruptcy.
The amounts apply to cases filed between April 1, 2025, and March 31, 2028. (11 U.S.C. § 523(a)(2)(C).)
You Can Use Credit Cards for Things You Need Before Bankruptcy
Necessary goods and services, such as rent, utilities, and food, aren't included in the presumptive fraud amounts.
How Credit Card Companies Object to Bankruptcy Discharges
A credit card company objects by filing an "adversary proceeding," a lawsuit within your bankruptcy case, asking the court to except the debt from your discharge. In either presumptive fraud instance, if the creditor files this lawsuit, you'll have to prove that you didn't commit fraud, or the charges will survive your bankruptcy.
Proving General Fraud
Even if your actions don't fit neatly into either of these categories, a creditor can circumvent the presumptive rule by proving you committed fraud when you made the purchase, regardless of when the purchase occurred. That means a trustee or creditor can still question charges made outside the 90-day or 70-day windows if your spending pattern suggests you never intended to repay what you charged.
Signs of Intent to Commit General Fraud
Here are some of the acts a creditor might present as evidence proving a lack of intent to pay for charged goods or services:
- running up charges shortly before filing
- continuing to use the card after receiving past due notices
- increasing spending in the months before filing
- continuing to use the card after deciding to file (for example, after meeting with a bankruptcy attorney), or
- using the card in a way that circumvents the spending limit (for example, by making multiple charges for smaller amounts that don't have to be precleared by the merchant).
If the creditor is successful, you'll remain responsible for the debt. It isn't uncommon for the creditor and debtor to settle for a reduced amount before litigation to avoid uncertainty and costs.
When to Stop Paying Credit Cards Before Bankruptcy
Stop paying credit card balances only after your bankruptcy lawyer confirms that you qualify. Credit card balances are debts filers regularly erase or "discharge" in bankruptcy, so you won't want to pay anything more toward them than necessary. Be sure you can pay the attorneys' fees and comply with other filing requirements.
The biggest risk of stopping credit card payments too soon is that if you later learn you don't qualify, you could find it hard to catch up on back payments, late fees, and other costs.
FAQs About Using Credit Cards Before Bankruptcy
- What counts as a "luxury" purchase before bankruptcy?
- Can a creditor challenge purchases I made for necessities?
- What happens if a creditor wins an adversary proceeding over a credit card debt?
What counts as a "luxury" purchase before bankruptcy?
Luxury goods and services are purchases that aren't necessary for your or your dependents' support or maintenance, such as vacations, electronics, jewelry, or dining out. Everyday essentials like groceries, rent, utilities, and medical care generally don't count as luxury purchases, even if you charge them on a credit card shortly before filing.
Can a creditor challenge purchases I made for necessities?
Yes, though it's less common. Even purchases for necessities can draw scrutiny if a creditor believes you had no intent to repay the charges. Keeping receipts and records showing the purchases were for essential living expenses will help you respond if a creditor questions them.
What happens if a creditor wins an adversary proceeding over a credit card debt?
If a creditor successfully proves fraud in an adversary proceeding, the court won't discharge that particular debt, and you'll remain legally responsible for paying it, even after your bankruptcy case closes.
Next Steps in Your Bankruptcy Case
Because of these rules, the safest course of action is to avoid luxury charges or cash advances that exceed the limits during the months before filing or as soon as you decide to file for bankruptcy, whichever comes first.
It's also a good idea to learn more about debts that aren't dischargeable in bankruptcy and running up credit cards before filing for bankruptcy. In addition, here are a few articles worth reading next.
In This Article
- Why You Should Stop Using Credit Cards Before Bankruptcy
- You Can Use Credit Cards for Things You Need Before Bankruptcy
- How Credit Card Companies Object to Bankruptcy Discharges
- When to Stop Paying Credit Cards Before Bankruptcy
- FAQs About Using Credit Cards Before Bankruptcy
- Next Steps in Your Bankruptcy Case