Using Credit Cards Before Bankruptcy

If you are considering filing for bankruptcy and you have credit card debt, there are important factors to weigh related to the use of credit cards before declaring.
Using credit cards before bankruptcy can influence your ability to discharge any debt accrued on the cards. This is the case for filing for either Chapter 7 or 13 bankruptcy.

Discharging debt is when lenders legally eliminate debt when the borrower declares bankruptcy and the debt is no longer enforceable. There are at least two cases where debt accrued on credit cards is not dischargeable upon bankruptcy declarations: when credit cards are obtained through fraudulent applications (misinformation is given on the application) or when a credit card is used without an intention to repay outstanding balances. The latter case is a more frequent cause for non-dischargeable debt. Additionally, because lenders can contest credit card debt during bankruptcy filings there are certain uses of credit cards before bankruptcy that may trigger a lender to contest dischargeable debt, such as: increase in credit card usage just before bankruptcy filing, newly issued credit cards, large cash advances shortly before bankruptcy filing, use of credit cards for recent travel or vacations before filing, patterns of borrowing on one credit card to make payments on other cards, exceeding the limit on credit cards, using cards when unemployed or without reasonable evidence that the debt can be repaid, large balance at the time of bankruptcy filing, or changes made to the card agreement after consulting a bankruptcy lawyer.

If you are considering filing for Chapter 7 or 13 bankruptcy and you have credit cards, you must be careful using credit cards before bankruptcy filing to reduce the chances of lenders contesting dischargeable debt. The number one rule is to avoid using your credit cards to make large purchases in the months leading up to your filing. If you cannot avoid using credit cards, be sure to not make luxury or large purchases on credit before filing. In fact, if you can make only essential purchases for small amounts, ideally less than $500, there is less of a likelihood that the charges will be contested by lenders.

If you are still concerned about using credit cards before bankruptcy filing, here are some strategies to consider: if possible wait to file bankruptcy so that you have more time and/or money to make payments on the account between the questionable usage and filing date, settle with an objective creditor before filing if possible, or contest the suit at trial and if you win you may recover some of the attorney’s fees accrued while defending the action. Bankruptcy lawyers are typically well-versed in the terms of dischargeable debt accrued on credit cards. Consulting a bankruptcy lawyer before filing may assist you with determining how best to use credit cards before bankruptcy.

Filing for bankruptcy is often unavoidable for many people due to circumstances beyond their control. However, declaring bankruptcy does not automatically mean that you are free from all debt. Using credit cards before bankruptcy can influence your ability to discharge credit card debt. Carefully evaluate your debt and card usage to reduce your chances of having non-dischargeable debt.


Source: Credit Cards For People With Bad Credit Rating

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