Ask the Attorney: Using Credit Cards Before Bankruptcy

Any creditor may challenge the discharge of a debt in bankruptcy if the creditor believes the debt was incurred by fraud. In the credit card context, that usually means that the creditor alleges that either the card was obtained by using false information, or, more frequently, that the use of the card by the debtor was fraudulent.

Just claiming that the debt was incurred by fraud is not enough for the credit card company to except the debt from discharge and make you pay despite the bankruptcy. The creditor must file a timely adversary proceeding in the bankruptcy case and present facts that prove fraud at trial. Obviously there is considerable energy and expense involved, so the odds that a credit card company is going to contest minor, reasonable credit card activity is slim.

To decide whether a credit card charge was incurred by fraud, judges sometimes use a checklist of factors that suggest fraud, since there is seldom ever clear evidence of dishonesty. 

The factors the court weighs in making its decision are:

• The length of time between the charges and the bankruptcy filing
• Whether or not an attorney had been consulted concerning the filing of bankruptcy before the charges were made
• The number of charges made
• The amount of the charges
• The financial condition of the debtor at the time the charges were made
• Whether the charges were above the credit limit of the account
• Whether the debtor made multiple charges on the same day
• Whether or not the debtor was employed
• The debtor's prospects
• Whether there was a sudden change in the debtor's buying habits
• Whether the purchases made were luxuries or necessities

The bottom line, as usual, is exercising common sense. If you are unemployed and use your credit card to buy gas for your car so you can go on job interviews, I wouldn’t be worried about the credit card company trying to make trouble.

On the other hand, if you decide to go on a credit card-funded weekend in Las Vegas immediately before you file for bankruptcy, you can assume that what happened in Vegas won’t necessarily stay there.

(This article is intended as a discussion of legal topics that are often confusing to many laypeople; it is not, and should not be relied on, as legal advice. The views expressed in this article are those of the individual contributor. Attorney Jesse White is licensed to practice solely in Pennsylvania and any information discussed relates solely to Pennsylvania law. The hiring of a lawyer is an important decision that should only be made after careful consideration. If you feel you need to hire an attorney, contact The Law Office of Jesse White in at 724-743-4444 for free written information about areas of practice and experience.)