What Should You Do with Your Credit Card Before Filing for Bankruptcy?

The simple answer to this question is “to stop using it.” Actually, the most ideal thing to do is to stop making new charges a few months before you plan to file for bankruptcy. Of course, if you have to file right away, you might not have time to wait.

When you get help from a bankruptcy attorney in your area, they may be able to guide you through the bankruptcy filing process.

Here’s the Thing: You Can’t Plan to Erase New Debt

Your credit card debt is unsecured debt. This means they are generally dischargeable during a bankruptcy case. However, you shouldn’t max out our cards while you prepare to file your bankruptcy case. When you accumulate debt and you plan to discharge them once you’ve filed, it cannot be erased.

If you purchase luxury goods or services within the 90 days before filing, they are presumed as non-dischargeable. Your creditor will file an adversary proceeding objecting to the discharge of these debts.

You Should Avoid Cash Advances

Cash advances are short-term loans that usually come at a high-interest rate. They come in different forms and can be taken against the available balance on the credit card. These are actually unsecured debts. And when you take out beyond the look-back period, it can be discharged in bankruptcy. But even older cash advances from before the 70-day presumption period can be identified as non-dischargeable.

The creditor can object to discharging cash advances alleging that you didn’t intend to pay the debt back regardless of whether it was incurred. And it can be non-dischargeable if the creditor can prove this case. Hence, cash advances can cause serious complications to your bankruptcy case. Thus, it’s best to avoid it.

The State of Your Credit Card in a Typical Chapter 7 Bankruptcy

There will be a bankruptcy trustee that will be appointed to administer the Chapter 7 bankruptcy filing. Part of the trustee’s duties is to take any non-exempt assets from the filer that can’t be protected through bankruptcy and sell them.

They will then proceed to pay the creditors a portion of what they’re owed. The first would be priority claims, including tax obligations and domestic support obligations. Then the next would be non-priority obligations which are credit card balances and medical bills.

For Chapter 7 bankruptcy cases, credit card companies and other unsecured creditors will receive non-exempt assets from the trustee. However, they can only get a pro-rata share, and if only there are no priority claims.

Creditors Have the Right and Will Object to Discharge

Since unsecured creditors don’t get much during Chapter 7 bankruptcy cases, it makes sense that lenders will routinely check the charging habits of a person leading up to the filing.

When the credit card company finds new debt charged before filing for bankruptcy and the total debt charged in the last 90 days is huge, then they will object to the discharge.

However, after the creditors file their objection, bankruptcy attorney you can defend your dischargeability by filing answers to your creditors’ allegations and later at a hearing.

Do You Need Help with Filing Your Bankruptcy Case?

Get a bankruptcy attorney to help you. Rosenberg, Musso & Weiner LLP is a reputable bankruptcy law firm in New York that can help you with your bankruptcy case. We’ve helped numerous individuals resolve their bankruptcies, whether it’s Chapter 7, 11, or 13.

If you want to know more, contact us today.

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