When To Stop Using Credit Cards Before Filing Chapter 7

When Should You Stop Using Credit Cards Before Bankruptcy?

If you're considering bankruptcy, it’s best to stop using your credit cards as soon as you start thinking seriously about filing. Using credit cards right before filing can raise red flags with the court, especially for luxury charges over $725 made within 90 days or cash advances over $1,000 taken within 70 days. These kinds of charges may be seen as fraudulent and might not be discharged, meaning you’d still be responsible for paying them back. 

If you’re getting ready to file Chapter 7 and recently used your credit card, it’s a good idea to review the charges. There is a big difference between charging a week’s worth of groceries and buying a ticket for a cruise. An essential charge is normal. The most important thing is that you don’t make any charges with the intention of erasing those debts through bankruptcy.

Most people who act in good faith don’t have any issues in bankruptcy court. But if you're worried about specific charges, you can always set up a free consultation with a bankruptcy attorney for extra peace of mind.

You Can’t Plan To Wipe Out New Debt in Bankruptcy

Credit card debt (and other unsecured debt) is usually wiped out in bankruptcy, but you can’t max out your cards right before filing and expect to have those new charges erased. If you take on debt with the intention of having it discharged, the court may not allow you to get rid of it. It may even be seen as bankruptcy fraud.

For example, charges for luxury items or services made within 90 days before filing are generally considered non-dischargeable. Creditors can challenge these charges by filing a complaint in your bankruptcy case, arguing that they shouldn’t be wiped out. They do this by filing an adversary proceeding (a lawsuit within the bankruptcy case) objecting to the discharge.

If the creditor can show you charged more than $725 on luxury goods within 90 days of filing, those debts may be excluded from the bankruptcy discharge. The creditor doesn’t have to prove that you didn’t intend to pay it back or knew you were going to file bankruptcy — they just need to show the timing and amount. To avoid issues like this, it’s best to stop using your credit cards for non-essential purchases as soon as you start thinking about filing.

Avoid Cash Advances

Cash advances can cause issues with your bankruptcy filing. A cash advance is a short-term loan you take against your credit card balance, usually with a high interest rate. If you take out cash advances totaling more than $1,000 within 70 days of filing, that debt is generally non-dischargeable, meaning it won’t be erased in your bankruptcy case. This rule applies no matter how you used the cash — only regular credit card charges are judged by whether they were for luxury items.

Cash advances taken before this 70-day period may be discharged in bankruptcy, but even these can cause complications. Creditors may still object and argue that you never intended to pay the money back. If they do, they’d need to prove their claim. To avoid potential problems, most people steer clear of cash advances if they’re thinking about filing for bankruptcy.

How Are Credit Cards Treated in Chapter 7 Bankruptcy?

Credit card debt is unsecured debt. This means it’s not tied to any specific property, like a car loan or mortgage. This type of debt is usually eligible for discharge, meaning it can be wiped out, giving you a fresh start.

When you file for Chapter 7, you list all your credit card balances, along with other debts, in your bankruptcy paperwork. Once you file your case, the court issues an automatic stay, which immediately stops creditors from trying to collect on those debts. This means credit card companies can’t call, send letters, or take legal action to collect what you owe.

If your bankruptcy goes smoothly and the court grants your discharge, most or all of your credit card debt will be erased.

Though it’s not common, if you have non-exempt property, the bankruptcy trustee can sell it to repay your creditors. Still, unsecured creditors, like credit card companies, are last in line to get paid. The trustee first pays off priority debts, such as certain taxes or child support. This means that even if the trustee sells some of your property, unsecured creditors may only receive a small portion of what you owe — or nothing at all. But again, in most Chapter 7 cases, filers don’t lose any property because they don’t have non-exempt assets, so the trustee doesn’t have anything to sell.

Will the Credit Card Companies or Creditors Challenge My Bankruptcy?

Since credit card companies are usually left with nothing in a Chapter 7 bankruptcy, they often review a person’s charging history in the months and weeks before the filing. If a credit card company sees significant new charges just before filing, especially if they total a large amount in the 90 days leading up to bankruptcy, they may file an objection to prevent that debt from being discharged. Fortunately, objections like these are relatively uncommon, especially if you haven’t made any large or unusual charges right before filing.

If a creditor files an objection, you’ll have a chance to respond and explain why the debt should be discharged. This process involves filing a response to the creditor’s claims, and there may also be a hearing. You can hire a bankruptcy lawyer to help you through this if you’d rather not handle it on your own.

If you’re successful in defending against the creditor’s objection, the debt will be erased along with your other dischargeable debts. But if the court sides with the creditor, that debt will be considered non-dischargeable, which means you’ll still be responsible for paying it back after your bankruptcy case is over.

What If I Can’t Afford To Stay Current on Credit Cards?

If you’ve decided that bankruptcy is the best way to deal with your debt, it’s okay to stop making minimum credit card payments. This can free up money for essentials like groceries, rent, or gas. Yes, missing payments will hurt your credit score, but you’ll be able to rebuild your credit after your bankruptcy case is complete.

It’s far more important to prioritize necessities like food, shelter, and transportation than to stress about your credit score. Missing a few payments before filing for bankruptcy won’t stop you from getting a fresh start. Discharging your debts through bankruptcy is often a much better financial solution than continuing to struggle to keep up with payments.

How Will Missed Payments and Bankruptcy Affect My Credit?

Both missed payments and bankruptcy will show up on your credit report and decrease your credit score. However, once your bankruptcy is complete, your debt-to-income ratio will improve… and usually your credit score along with it. This is because bankruptcy wipes out many unsecured debts, like credit card balances.

Lenders may even see you as less risky after bankruptcy because you won’t be able to file for Chapter 7 bankruptcy again for eight years. While it may take time to rebuild your credit, many people find that it’s easier to move forward financially after their debts are discharged.

What Happens When I Stop Making Payments?

When you stop paying your credit card bills, your creditors will likely start trying to collect. You may get frequent phone calls and letters demanding payment. This can feel stressful, but it doesn’t last forever. As soon as you file your bankruptcy petition, something called the automatic stay goes into effect. This legal protection stops all collection efforts immediately, including phone calls, letters, and even lawsuits.

Let’s Summarize...

If you’re planning to file Chapter 7 bankruptcy, it’s best to stop using your credit cards at least 90 days before filing. This helps you avoid potential issues with your case. You can’t max out your credit cards right before filing and expect those debts to be wiped out. Bankruptcy is designed to help honest but struggling people get a fresh start. If you take on debt knowing you won’t repay it, the court may decide those charges aren’t eligible to be discharged.

If you aren’t sure which debt relief option is right for you, take our quick screener to see what you’re eligible for. If you want to file Chapter 7 and your case is simple, you may be eligible to use our free online filing tool. Upsolve has helped thousands of people discharge almost $700 million in debt through Chapter 7 bankruptcy.