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Should I max out my credit cards before filing bankruptcy?

On Behalf of | Apr 3, 2018 | Bankruptcy, Credit Card Debt

You probably know that when you file Chapter 7 bankruptcy in Louisiana, your credit card debt is wiped out; i.e., discharged. Consequently, you may think that maxing out your credit cards before filing bankruptcy is a good idea. It is not.

While it is true that Chapter 7 discharges virtually all of your consumer debt, including credit card debt, you should know that Section 523(a)(2)(C)(I) of the Bankruptcy Code contains a presumption against discharging recent credit card debt. This presumption applies to credit card debt that you incur less than 90 days before filing bankruptcy from a single creditor for consumer goods that are worth over $675.

Rebuttable presumption

The Bankruptcy Court for the Northern District of West Virginia recently took up this issue in the case of a woman who got a cash advance of $8,000 on a bank credit card approximately two months before she filed bankruptcy. She used the proceeds to buy household items and other consumer goods.

Not surprisingly, her bank petitioned the court to exempt this debt from discharge, citing the Bankruptcy Code. The court, however, disagreed with the bank’s position, stating that while the anti-discharge presumption exists, it is a rebuttable presumption that bankruptcy declarants can overcome with clear and convincing evidence that it does not apply to them. That is precisely what the woman did in the case at bar.

Here the court believed the woman’s testimony that at the time she took out the cash advance, she fully intended to pay the debt and was not contemplating bankruptcy. The court therefore ruled that she did not use trickery, deceit, etc. to obtain the cash advance. In addition, even though the consumer goods she purchased with the cash advance proceeds totaled over $675, the court held that her purchases represented “normal credit card usage.” Based on these two factors, the court ruled that she had overcome the presumption and discharged her debt.

Lessons learned

Despite this court’s ruling in favor of this particular bankruptcy declarant, you should not rack up credit card debt once you start thinking about filing bankruptcy as your last resort for debt relief. The presumption against discharge of recent credit card debt is a strong one, and you need strong evidence to overcome it.

Disclaimer – Attorney Advertising. Under Federal Law, we have been designated a Debt Relief Agency and we help people file for bankruptcy relief under the Bankruptcy Code. This information is not intended as legal advice and no attorney-client relationship is created. Results may vary. Results not guaranteed. Dramatization – not actual clients in pictures and videos. Thomas C. McBride, attorney in Alexandria, LA.