Rules About Credit Card Use Before Chapter 7 Bankruptcy

If you are in the process of evaluating Chapter 7 bankruptcy, you might be tempted to use your credit cards to make purchases right now. By using your credit cards now, you may think you can buy some things you want without having to repay them due to the discharge you'll receive in bankruptcy. Doing this is never a good idea, though. Bankruptcy has clear rules about credit cards, and here are a few things to understand.

There Is a Lookback Period for Credit Card Purchases

When you file for Chapter 7, you should realize that a trustee will analyze your finances with a fine-tooth comb. The trustee does this to verify the details of your case and to detect fraud. One of the things that he or she will look at is your recent credit card purchases. In Chapter 7, there is a lookback period of six months for credit card use. The trustee will carefully look at every purchase you made during the last six months. If he or she sees that you used your credit cards for frivolous purchases, you can end up in trouble.

You can continue using your credit cards during these six months if you need to pay for everyday things, such as groceries or gas. You cannot use them to buy luxury items, though.

There Is a Lookback Period for Cash Advances from Credit Cards

There is also a lookback period for cash advances from credit cards. The lookback period is 70 days from the day you file for bankruptcy. The trustee will also look for this when reviewing your information. If you took a cash advance within this time for more than $950, the trustee might ask questions about this advance. Why did you take it? What did you use the money for? These are the types of questions that trustees ask.

Intentional Misuse of Credit Cards Before Bankruptcy Has Consequences

If the trustee sees evidence of misuse of credit cards, there are consequences. The trustee could dismiss your bankruptcy case for fraud. You could even end up with criminal charges for this, so you should avoid misusing your credit cards if you plan to file for bankruptcy soon.

Before you decide to max out your credit cards or make purchases with them, make sure you understand these things. If you have questions, talk to a bankruptcy attorney who can give you insights into the bankruptcy process.