When faced with financial hardship, it can be daunting to consider bankruptcy. If you’re in this situation, you likely have a lot of questions, including whether it’s wise to continue using your credit card when you intend to file for bankruptcy. The short answer is you should avoid doing so if possible, but charges for certain necessities may be forgivable.
That said, it’s essential to have a strong understanding of the legal issues at play in this situation. At the end of the day, you’ll also want to receive advice from a bankruptcy lawyer who has analyzed your unique situation before making a decision.
Legal Considerations for Using Credit Cards Before Bankruptcy
Credit cards often play a significant role in financial distress, whether by contributing to debt accumulation or serving as a lifeline during tough times. However, their usage in the period leading up to bankruptcy raises concerns about potential misuse or fraudulent behavior.
Using credit cards before filing for bankruptcy isn't inherently illegal. That said, certain actions taken with the intent to defraud creditors can have severe consequences. Bankruptcy laws scrutinize recent credit card transactions, especially significant ones, and may view them unfavorably if deemed fraudulent.
What Is Fraudulent Conveyance?
One crucial aspect to consider is the concept of fraudulent conveyance. This occurs when people incur debts or transfer assets with the intent to hinder, delay, or defraud creditors. If a court determines that a debtor used credit cards with such intent shortly before filing for bankruptcy, it could lead to serious repercussions, including denial of discharge or even criminal charges.
The way credit cards are used before bankruptcy can influence the outcome of the proceedings. While legitimate purchases for necessities or ordinary expenses may not raise red flags, extravagant or unnecessary spending could raise suspicions of fraudulent behavior.
For example, the court is likely to deny a discharge when it appears as if the petitioner is attempting to discharge a lot of recent luxury expenses. It’s unlikely to make the same determination if recent charges were made for reasonable necessities, such as groceries and utilities.
Timing Matters: The Lookback Period
Bankruptcy laws include provisions known as the lookback period, during which certain transactions are subject to heightened scrutiny.
Credit card transactions made within this period, typically ranging from 90 days to one year before filing for bankruptcy, may face closer examination. For example, any bankruptcy petition filed three months before or after the winter holiday season may receive extra scrutiny to ensure the bankruptcy petitioner isn’t simply attempting to discharge holiday shopping debt.
Alternatives to Credit Card Usage
Rather than relying on credit cards in the lead-up to bankruptcy, it may be worth exploring alternative financial strategies. Seeking professional advice from credit counselors or bankruptcy attorneys can provide valuable insights into managing debt and navigating the bankruptcy process effectively.
Additionally, exploring debt consolidation or negotiation options might offer more sustainable solutions than accruing more credit card debt—and the interest that comes with it.
Contact Us for Legal Assistance
The decision to use credit cards before filing for bankruptcy is not one to be taken lightly. While it's not inherently illegal, anyone in this position must exercise caution and prudence to avoid adverse legal consequences. This is where having a bankruptcy lawyer can help a lot.
Our bankruptcy attorneys at Licata Bankruptcy Firm, PC, are steadfast advocates for our clients. We strive to ensure our clients have a clear understanding of their legal situations and the options available to them. When you have us on your side, you can rest easier knowing that we can provide the experienced guidance you need to navigate bankruptcy.
If you want a free initial consultation, contact Licata Bankruptcy Firm, PC, for help today.