Using Credit Cards Before Bankruptcy Filing: The Best Way to Endanger Your Discharge
Using credit cards before filing bankruptcy is one of the first things that an experienced Michigan bankruptcy attorney will tell you not to do after your initial consultation. Using credit cards before bankruptcy, particularly within 90 days of the filing of a Chapter 7 or Chapter 13 bankruptcy petition will be scrutinized for potential fraud by both the bankruptcy trustee and any involved creditors. If the use of a credit-card within that time-period is found to be fraudulent—that is, purchases made without any actual intent to pay for them—that debt will not be discharged, and the petition as a whole could face the possibility of complete dismissal. Additionally, the possibility of criminal bankruptcy fraud charges against the debtor also exists.
Using Credit Cards Before Bankruptcy: Proving Fraud
As with any allegation of fraud, the question of whether a particular debt that is otherwise dischargeable in bankruptcy may be found to be non-dischargeable through false pretenses generally swings on the factual circumstances surrounding the purchases in question. The creditor has the burden of proof in make an allegation of fraud, so it must prove that the debtor intentionally misrepresented his or her intention to pay when making the purchases. Credit-card debts that a debtor simply turned out to be unable to pay are not fraudulent, so creditors must be able to prove the intent to fraud in order to render a debt non-dischargeable. Naturally, this is easier said than done, unless the debtor wishing to file bankruptcy has used a credit-card to go on an obvious spending-spree or used it to purchase items that the bankruptcy court would classify as "luxury goods or services." Any debt of more than $500 to a single creditor for luxury goods or services less than 90 out from the filing of a bankruptcy petition will be presumed fraudulent, for instance. Likewise, cash advances on credit cards of a certain amount within only 70 days prior to a bankruptcy filing will also be presumed fraudulent. Questions of proof in these sorts of cases will generally involve arguing that items purchases did or did not fall into the "luxury goods or services" classification, and, further, the presumption of fraud may be rebutted with proof that the items purchased were needed because of a sudden change in the debtor's circumstances or with other factual showings that the debtor honestly needed and meant to pay for the items purchased. Courts generally will examine circumstantial evidence, however, that a debtor did not intend to make good on a debt incurred through the use of credit-cards, as well as whether the credit-card use was made after the credit-card limit has been exceeded or after the creditor has contacted the debtor instructing them to destroy or return the cards.
Using Credit Cards Before Bankruptcy: The Bottom Line
As with any allegation of fraud in any area of the law, individual circumstances will determine the outcome of an investigation. However, such as investigations are easily avoided by simply not using credit cards before bankruptcy or ceasing to make unnecessary purchases the moment you realize that you may need to file for bankruptcy—particularly after you have consulted with a bankruptcy attorney. Continued use may not only expose you to allegations of fraud but may also delay the point at which you are able to file for bankruptcy, as the obvious advice a bankruptcy attorney would give to a prospective client with such activity on their accounts is to wait until at least the 90 days has elapsed, if not longer. If you are a southeast Michigan resident and are considering filing for bankruptcy, contact The Hilla Law Firm, PLLC at (866) 674-2317 or click the button below to schedule a free, initial consultation.