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How Recent Credit Card Use Relates to Filing Bankruptcy

Many people struggling with debt may end up resorting to credit card use because there is no other way to afford food and clothing.  Yet their credit card interest keeps mounting up and they plunge deeper and deeper into credit card debt.

The Bankruptcy Code puts restrictions on credit card use prior to filing bankruptcy so that debtors do not irresponsibly run up credit card bills and then turn around and ask to discharge the debt.  However, the code differentiates between frivolous spending and spending on necessities.

Under 11 United States Code (USC) § 523 - Exceptions to discharge:

  • Debts owed to a single creditor aggregating more than $500 for luxury goods or services incurred within 90 days before filing bankruptcy are presumed to be nondischargeable.
  • Cash advances aggregating more than $750 made within 70 days before filing bankruptcy are presumed to be nondischargeable.

What this means is that debtors may still have to pay back certain recently acquired credit card debts despite the fact of filing bankruptcy.  The court reviews the credit card use to determine whether the spending was to cover necessities.  Bankruptcy courts view groceries and gasoline for vehicles as necessities and generally discharge such incurred expenses.

However, if at all possible, for the sake of simplifying a bankruptcy filing, it is better not to use a credit card within three months of filing for bankruptcy.  A knowledgeable and experienced bankruptcy lawyer can advise regarding credit card debt and argue on a debtor’s behalf when its use was to cover necessities.

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