Maxing out credit cards immediately before filing a bankruptcy2:30 pm
If a credit card company notices significant charges or cash advances on an account prior to filing bankruptcy, the company does have the option to file a complaint asking the Court to determine that those purchases should not be discharged in a bankruptcy petition.
Bankruptcy Code section 523(a)(2) addresses these types of credit card transactions. If a debtor purchases more than $600.00 of luxury goods or services (goods or services not reasonably necessary for the support or maintenance of the Debtor or dependent of Debtor) within ninety (90) days prior to filing bankruptcy, those purchases are presumed to be non-dischargeable. Additionally, if a Debtor takes out cash advances of more than $875.00 within seventy (70) days of filing bankruptcy, those cash advances are also presumed to be non-dischargeable. What that means is that if a Creditor files a complaint against the Debtor alleging those circumstances, the debt is presumed to be non-dischargeable and the burden then falls to the Debtor to prove circumstances why it should be discharged in the bankruptcy.
Also, a credit card company could argue that the charges on credit were obtained by false pretenses, false representation, or actual fraud. The credit card company would have the burden to prove those facts to the Court. The likely argument is that because of the Debtor’s financial circumstances at the time when they used the credit card, they were not in a financial position to pay back any of these purchases and had no intent of paying the credit card company back, and as a result, those debts should not be discharged in the bankruptcy.
Therefore, if a credit card company notices significant cash advances or charges prior to filing bankruptcy they will look to that provision of the Bankruptcy Code to determine whether it is in their best interest to file a complaint against that Debtor and request the Court to find those debts to be non-dischargeable in the bankruptcy. Contact your bankruptcy attorney to discuss whether purchases immediately prior to filing bankruptcy will raise issues with a Creditor and result in a possible complaint filed by the Creditor asking the Court to determine those debts non-dischargeable.