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Ideally, you should stop using your credit cards as soon as you know you’re going to file for bankruptcy. Most people realize this when they become insolvent, realizing that they don’t have enough cash to pay off their creditors.
When you think about it, it makes sense: If debt has dug you into a hole, why create more debt that makes it harder to climb out? With each new charge, your hole of debt gets a little deeper, and bankruptcy may not be able to help you with recent credit card debt.
Why You Should Stop Using Your Credit Cards Before Bankruptcy
If you think filing for Chapter 7 is in your future, it’s best to stop making new charges on all of your credit cards a few months before your filing date. You should especially avoid making charges that you intend to discharge in bankruptcy.
You might wonder why this is, and the answer is that you might not be able to discharge all of your debt. As a rule of thumb, no one should plan on discharging debt in bankruptcy, because what happens is up to the judge’s discretion. If they feel that granting a discharge would be unfair to your creditors, you can remain liable to repay all or a portion of it.
This can happen if you don’t stop using your credit card, especially if you use it to purchase luxury goods within 90 days of filing for bankruptcy. Luxury goods are things like expensive clothing, video games, vacations, expensive dinners, and other elective expenses.
The court may even interpret an attempt to discharge $800 or more of debt for luxury goods or services (incurred 90 days before filing for bankruptcy) as fraud, which can lead to more serious legal consequences.
What Can I Use My Credit Card for Before Bankruptcy?
If you must use your credit card, you may be able to avoid a presumption of fraud by restricting your purchases to necessary expenses. The court may be more forgiving if your new credit card debt within 90 days before your bankruptcy filing is for necessities like food, rent, clothing, utility bills, and other expenses like these.
Beware of taking a cash advance: Until March 2025, a cash advance of more than $1,100 from a single creditor within 70 days before filing for bankruptcy may be interpreted as bankruptcy fraud.
When Should I Stop Paying My Credit Card Balance?
It’s tricky to discern when you should stop paying any of your debts when you know bankruptcy is on the horizon. Because you can potentially discharge all of your credit card debt, any payments you make could be money wasted. That said, you shouldn’t decide for yourself when to stop paying your credit card bill.
Instead, you should hire a bankruptcy lawyer and wait for their guidance. After determining that you’re a good candidate for bankruptcy, your attorney can offer guidance such as telling you when to stop making payments on your debt or which debts to prioritize over others.
If you think you need that kind of personalized guidance, it’s only a fraction of what we can offer at Buchalter & Pelphrey Attorneys At Law with our help, bankruptcy can make a lot more sense and be less intimidating than it may be right now.
To request a free case evaluation, contact us online now.