Limit Credit Card Use Before Bankruptcy

Limit Credit Card Use Before Bankruptcy

The federal bankruptcy laws are very forgiving and will protect the honest, but unfortunate debtor. One of the main aims of bankruptcy is to give the debtor a fresh start, but Massachusetts bankruptcy courts frown on anyone trying to use the laws to get a head start. Bankruptcy attorneys have a saying: "Pigs get fat, hogs get slaughtered."

One way some individuals try to get a head start is using up available credit just prior to filing bankruptcy. As you can imagine, going on a spending spree with your credit cards and then filing bankruptcy is a very bad idea. The Bankruptcy Code specifically addresses credit card spending sprees, and presumes that such debts are nondischargeable when the debtor makes purchases for "luxury goods or services" totaling over $500 to one creditor within 90 days prior to the bankruptcy filing. The term "luxury goods or services" does not include purchases "reasonably necessary for the support or maintenance of the debtor or a dependent of the debtor." Likewise, cash advances that total more than $750 to one creditor within 70 days of the bankruptcy filing are presumed nondischargeable.

Last year the United States Supreme Court in Milavetz reiterated that incurring new debt before bankruptcy with the intent to discharge the debt is not only prohibited, but may also amount to civil fraud or a criminal act. The high court said that bankruptcy attorneys cannot instruct or encourage debtors to take on more dischargeable debt before bankruptcy, but attorneys "remain free to talk fully and candidly about the incurrence of debt in contemplation of filing a bankruptcy case."

There are many situations where taking on additional debt is beneficial and permissible. The Supreme Court cited three of those situations in the Milavetz opinion: (1) refinancing a mortgage; (2) purchasing a reliable car; and (3) incurring "additional debt to buy groceries, pay medical bills, or make other purchases 'reasonably necessary for the support or maintenance of the debtor or a dependent of the debtor[.]'"

If you are struggling with debt and need bankruptcy relief, call the Law Office of Robert W. Kovacs, Jr. toll-free at (877) 315-2641 before you make any further purchases with credit. The bankruptcy laws can relieve Worcester debtors of many financial burdens, but the path to financial recovery can be complicated without the sound advice from an experienced Massachusetts bankruptcy attorney. Don't make any significant financial decisions prior to filing bankruptcy without consulting your attorney.