Recent Credit Card Use and Filing for Bankruptcy – What Are Some Guidelines?

Most bankruptcy lawyers will tell you that credit card contributes to most consumer bankruptcy case filings.  Often, overwhelming credit card debt is the primary reason for a filing.  For example, if you have $10,000 or more in credit card debt, and you send in only the minimum payment of 2% of the balance each month, you will need over 50 years to pay off your debt.  You can run your own numbers using an on-line credit card interest calculator.

Many people use credit cards as a means of survival.  Frequently, therefore, I see clients who desperately need to file bankruptcy but have used credit cards recently.  Not surprisingly, recent credit card use prior to bankruptcy is a problem – but just how big of a problem is it?

I recently received this question from a reader of my blog:

Hello, I had a question about chapter 7 bankruptcy. If I incur a lot of debt on my credit cards (like $30,000 worth) four or five months before declaring bankruptcy (for business expenses), could this be considered Bankruptcy Fraud?  In Massachusetts, the lookback period for credit cards is 90 days, but can it be extended further?

Here is my answer:  Bankruptcy Code Section 523 addresses this situation.  Section 523(a)(2) provides that:

consumer debts owed to a single creditor and aggregating more than $500 for luxury goods or services incurred by an individual debtor on or within 90 days before the order for relief under this title are presumed to be nondischargeable; and