Filing for bankruptcy is a major financial decision that many people consider when they are struggling with overwhelming debt. Some might wonder if maxing out credit cards before filing is a smart strategy, assuming the debt will be discharged. However, this approach can lead to serious complications.
A bankruptcy lawyer in Ontario, CA can guide you through the process and help you avoid costly mistakes. Contact Law Offices of Terrence Fantauzzi at (909) 552-1238 for a free legal consultation.
The Dangers of Maxing Out Credit Cards Before Bankruptcy
Using your credit cards irresponsibly before filing for bankruptcy can raise red flags with bankruptcy courts. While it may seem tempting to take advantage of available credit, doing so can be seen as an attempt to defraud creditors, especially if you make significant purchases or take out large cash advances shortly before filing.
How Maxing Out Credit Cards Could Be Considered Fraud
One of the primary risks of maxing out credit cards before filing for bankruptcy is the perception of fraud. Bankruptcy courts carefully scrutinize recent financial activity to determine whether the filer acted in good faith. Making large purchases or taking cash advances within a few months of filing could be interpreted as an intention to defraud creditors, which could lead to the dismissal of your case.
Working with a bankruptcy lawyer in Ontario, CA can help you avoid making any financial moves that could jeopardize your case or lead to legal consequences.
Bankruptcy Law Restrictions on Recent Credit Card Use
Bankruptcy laws are clear when it comes to incurring debt shortly before filing. For example, luxury purchases exceeding $800 within 90 days of filing are presumed to be nondischargeable. Similarly, cash advances over $1,000 made within 70 days of filing are also likely to be excluded from discharge. These limits are in place to prevent individuals from exploiting the bankruptcy process by accruing new debt they have no intention of repaying.
What Qualifies as a Necessary Expense?
While bankruptcy courts may look unfavorably on luxury purchases, not all credit card use is prohibited before filing. Necessary expenses—such as food, basic clothing, rent, and utilities—are typically acceptable. If you need to make purchases to maintain your family’s health or safety, these may be considered necessary.
However, it’s always best to consult with a bankruptcy lawyer in Ontario, CA before using your credit cards during this critical period to ensure you don’t inadvertently harm your case.
The Consequences of Challenging a Debt Discharge
Creditors have the right to challenge the discharge of certain debts in bankruptcy court, especially if they believe the debtor incurred the debt with no intention of repayment. If a creditor successfully argues that your recent credit card purchases were made in bad faith, these debts may not be discharged, leaving you responsible for paying them even after bankruptcy.
Financial Strain from Maxing Out Credit Cards
Maxing out your credit cards before filing for bankruptcy can have several negative financial consequences, including:
- Higher minimum payments: Maxing out your cards means larger monthly payments, which can further strain your finances before bankruptcy.
- Increased interest rates and fees: Credit card companies often raise interest rates for maxed-out cards, making it even harder to pay down the debt.
- Long-term credit score damage: A maxed-out credit card can significantly lower your credit score, affecting your ability to secure loans, rent an apartment, or even get a job.
Avoid Mistakes with Guidance from a Bankruptcy Lawyer
Filing for bankruptcy is a complicated process, and missteps—such as maxing out your credit cards—can lead to severe consequences. Consulting with a bankruptcy lawyer in Ontario, CA can help you avoid common mistakes and ensure that you take the right steps toward financial recovery.
If you’re considering bankruptcy and unsure about how your credit card usage might affect your case, contact Law Offices of Terrence Fantauzzi at (909) 552-1238 today. Our experienced team can guide you through the process, help you understand your rights, and work with you to find the best solution for your financial situation.