It can be tempting to use up all of the available credit on your cards when you are about to declare chapter 7 bankruptcy. Before you whip out that card, though, take a look at what chapter 7 filers need to know about credit card usage right before a bankruptcy filing.
Two Types of Debt in Bankruptcy
It's helpful to learn a bit about how bankruptcy looks at debts. You have secured debts, which are secured to property like your home or car. If you don't pay secured debts, you may lose the property. On the other hand, credit card debt is secured to nothing at all. If you don't pay, you can be sued and suffer from other punitive actions, but you won't ever lose any property. That puts credit card debt into a special category in which the creditor seldom, if ever, regains the losses suffered when a cardholder declares chapter 7. It also means filers have to abide by extra rules when it comes to credit cards.
Don't Be Fraudulent
The word fraud may seem a bit harsh, but keep in mind that you can accidentally or unintentionally commit bankruptcy fraud if you don't know about the rules. Since creditors have no way of knowing why a consumer is using their card in the months prior to bankruptcy, the bankruptcy code allows them to look back on transactions and question that use. That also means that even accidental or casual use of the cards might come under scrutiny. It's important to know, however, that you can still use your card prior to filing chapter 7, as long as you follow the rules. Take a look at the guidelines so that you don't run afoul of the rules and cause a delay in your efforts to get debt relief:
- For purchases that fall within the 90-day period prior to filing, you must stay below $725 (that is not for each card but $725 in total)
- For cash advances that occur in the 70-day period prior to filing, you must stay below $950 or $1000 total.
Exceptions to Know
The bankruptcy code is not meant to be punitive to those who need to use the cards for important purchases. If you need to buy groceries, gas, pay utilities, buy clothing for your child or a new washing machine, you are probably safe from issues. Just be ready to show proof of what you bought and keep your purchases to needs and not wants.
Speak to a bankruptcy lawyer to find out more about credit card use before you file, or for more information about bankruptcy law.