When money gets tight, it's only natural to turn to credit cards. In most cases, using your credit cards to help tide you over between paydays is fine. If things have progressively gotten worse and you are having trouble paying your bills, you may be considering filing for Chapter 7 bankruptcy. Read on to find out why caution is urged if you use your credit cards before filing.
The Good Thing About Credit Card Debt and Bankruptcy
If you, like many consumers, have a lot of credit card debt, a Chapter 7 bankruptcy will allow you to free up hundreds of dollars a month. Most credit card debt can be discharged with a filing. The relief begins at the time of the filing. From that moment on, you won't have to pay those large minimum payments or put up with letters and calls about your debt. Redo your budget and leave off the credit card payments. You can then see what life will be like after you file for bankruptcy.
Using Credit Cards Before You File
Now for the bad news. You have to be very careful about credit card use before you file, and that means starting several months before you file. The bankruptcy trustee has the power to make you responsible for certain card purchases and cash advances if they fall into the right category. Also, creditors may file an objection to the use of a card in some circumstances. Below are the details you need to know.
Using a Credit Card for Cash Advances
Taking cash from a credit card is convenient, but the fees charged by the creditor can be punitive. In some cases, however, cash is needed. If you used a credit card to take cash advances in the 70-day period that total more than $1,000, you might have to deal with fraud issues. Note that if you used the cash to pay bills, buy needed appliances, have a vehicle repaired, or other much-needed non-luxury purchases, be ready to prove it, and the charges may be discharged.
Using a Credit Card for Purchases
If you used a credit card to charge over $725 to buy luxury items in the 90 days preceding your filing, you could be accused of fraud. That $725 doesn't have to be charged all at once. Again, the restrictions apply only to the purchase of luxury goods or services. A trip to the spa might be considered a luxury purchase. A trip to a salon for a haircut might not. With both cash advances and credit card purchases, keep the receipts or be prepared to print them out if your use is challenged.
If you have further questions about using your cards before filing for Chapter 7 bankruptcy, speak to a bankruptcy lawyer right away.