How long before filing for bankruptcy are you supposed to stop using credit cards?

Question

I recently lost my job and can't pay my outstanding debts, so I'm considering filing for bankruptcy. My problem is that I can hardly cover my daily expenses without using my credit cards. How soon before bankruptcy do I have to stop using my credit cards?



Answer

You'll want to stop credit card use as soon as you realize that you can't pay the bill and certainly as soon as you decide to file for bankruptcy. But before explaining why, you should know that an exception exists: You can use a credit card for life necessities, food, a winter coat, heating oil or propane, or needed car repairs, for instance, before filing for bankruptcy. However, if you need to rely on this exception, keep good records of your expenditures in case a creditor questions the purchases.

Now for the general rule.

When you file for Chapter 7 bankruptcy (the chapter usually filed after a job loss), your creditor will examine your recent financial transactions looking for signs of fraud. In this context, fraud means 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. Here's how it works.

Suppose you run up more than $800 (for cases filed between April 1, 2022, and March 31, 2025) to a single creditor for luxury goods or services (not life necessities, as explained above) 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. In that case, the law will automatically presume you had fraudulent intent when making the purchase.

Again, necessary goods and services, such as rent, utilities, and food, aren't included in the presumptive fraud amounts. However, the presumptive fraud rule also applies to cash advances of more than $1,100 from a single creditor (for cases filed between April 1, 2022, and March 31, 2025) during the 70 days before filing for bankruptcy.

In either presumptive fraud instance, if the creditor objects and files an adversary proceeding (lawsuit) during your bankruptcy case, you will have to prove that you didn't commit fraud, or the charges will survive your bankruptcy.

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. 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. Of course, defending lawsuits is costly, so most debtors agree to repay the debt right away, sometimes at a reduced amount.

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. Learn more about credit cards in bankruptcy and debts that aren't dischargeable in bankruptcy. Or read more about running up credit cards before filing for bankruptcy.

Navigating Your Bankruptcy Case

Bankruptcy is an unusual area of law because it's essentially a qualification process. The laws provide instructions for completing a 50- to 60-page bankruptcy petition, and because all rules apply in every case, you can't skip a step.

The forms and resources below will help you find more information. Also, you can use this list of Chapter 7 and 13 bankruptcy forms to see where this topic falls. And this handy bankruptcy document checklist will help you gather the things you'll need to complete the petition.

More Bankruptcy Information

Bankruptcy Forms

Schedule E/F: Creditors Who Have Unsecured Claims

Related Information

Running Up Credit Card Debt Before Bankruptcy: Is It Fraud?

How Much Debt Do I Need to File for Bankruptcy?

Will I Lose All My Property If I File for Bankruptcy?

Will Bankruptcy Affect My Spouse?

Questions to Expect at the 341 Meeting in Your Bankruptcy Case

Need More Info?

We want to help you find the answers you need. Go to TheBankruptcySite for more easy-to-understand bankruptcy articles, or consider buying a self-help book like The New Bankruptcy by Attorney Cara O'Neill.

We wholeheartedly encourage research and learning, but online articles can't address all bankruptcy issues or the facts of your case. The best way to protect your assets in bankruptcy is by consulting with a local bankruptcy lawyer.

Updated: April 25, 2022

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