Avoiding Credit Card Use Before Bankruptcy

It’s common for debtors to want or need to use their credit cards before filing for bankruptcy, but it could be an issue with the trustee. In this blog post, I’ll discuss the issues to be aware of and how they could affect a bankruptcy case.

Key Points:

• Generally, avoid using credit cards at least 90 days before filing bankruptcy.
• Excessive use of credit cards could result in the trustee objecting to discharging the debt.
• Luxury goods or cash advances over a certain amount within a specific timeframe before filing could be considered fraud by the trustee.
• Having your credit card limit maxed out before filing isn’t usually an issue, but doing so intentionally can be considered fraud.
• Using your credit cards to pay the bankruptcy lawyer isn’t allowed.

Exceptions to Discharge Under the Bankruptcy Code

Generally, a debtor should avoid using their credit card at least ninety days before filing for bankruptcy. Otherwise, it’s possible the bankruptcy trustee would object that the debt cannot be discharged under Title 11 of the Bankruptcy Code, Code §523 – Exceptions to discharge.

Per Section 523 of the Bankruptcy Code, debts incurred to a single creditor for more than $500 in luxury goods or services incurred within 90 days of filing for bankruptcy might not be discharged. This includes cash advances that total more than $750 within 70 days of filing for bankruptcy. If so, the trustee can accuse a debtor of committing fraud or object to those debts being eliminated in bankruptcy.

Paying Your Credit Cards Before Filing for Bankruptcy

When you know you are filing for bankruptcy, you should stop paying your credit cards. There’s nothing to gain by continuing to pay them. However, there are times, depending on how much the credit cards have been used leading up to bankruptcy, that a lawyer might recommend continuing minimal payments for a certain period of time to avoid issues with the trustee.

• Did Your Bankruptcy Lawyer Ask You These Questions?

For example, if a client recently bought furniture and spent $2,000, it’s common for the bankruptcy lawyer to advise to continue making minimal payments for twelve months. After one year of payments, the furniture’s value has greatly depreciated, so there are likely no over-exempt issues. Also, the payments show a good faith effort. Any payment made throughout the year would be far less than paying back the full amount because of the trustee’s objection.

Note that one year of making payments is just an example. There are times I’ve had to tell clients they can’t file for two or more years. So, it depends on the specific facts of the case.

Using Your Credit Card Before Filing for Bankruptcy

Credit cards can be used for necessities before filing for bankruptcy. For example, an emergency, groceries, utility bills, etc. However, since it’s common for bankruptcy trustees to request credit reports to review for any recent credit card usage, keep receipts to prove what the credit card was used for and what was purchased.

Maxing Out Credit Cards Before Filing for Bankruptcy

The average debtor has maxed out their credit cards before meeting with a bankruptcy lawyer. So, maxing out credit cards before filing for bankruptcy is usually fine. However, doing so intentionally can be considered bankruptcy fraud. To what extent this is an issue depends on how much was spent and on what.

As mentioned previously, that’s why I sometimes recommend that my clients continue making monthly payments for a certain period to avoid fraud accusations. After twenty-four years and thousands of clients, I’ve yet to have one issue with this simple and effective method.

Purchasing Luxury Goods and Cash Advances Before Filing for Bankruptcy

In my bankruptcy law textbook, I made sure to discuss this issue, and that’s why I’m glad you’re here reading this blog. If you want to learn how to frustrate a lawyer immediately, it is when a lawyer hears that a client accepted legal advice from their cousin or best friend who graduated with honors from Google School of Law.

For whatever reason, sometimes clients believe the word of a non-lawyer because it’s someone they trust versus the lawyer they are consulting with who has decades of experience. The analogies I use to respond to the client depend on the client’s employment.

• Not All Debts Can Be Wiped Out in Bankruptcy

For example, a dentist earning over $200k a year recently consulted with me about his divorce case. He was playing lawyer, and it wasn’t going well for him in court. Gee, I wonder why?

At some point, I had to ask him if I should seek dental advice from my mechanic and seek advice from him on how to change my transmission. Finally, the message got through.

So please, listen to your lawyer, not those who play one in their spare time. There’s a reason my blog doesn’t focus on medical malpractice.

To what extent vacations, cash advances, or major purchases affect a bankruptcy case also depends on how much was spent and when. For example, if there has been a substantial increase in debt, the next question is why. A shopping spree or that dream Caribbean cruise will be an issue. So, those debts would be presumed non-dischargeable.

What if a new laptop was purchased? If there’s a term law students are familiar with, it is “it depends.” If the laptop is required for work, it’s most likely  “reasonably necessary for the support or maintenance of the debtor.” However, even if the bankruptcy trustee is convinced that the laptop’s debt should be discharged, there might be over-exempt issues.

Cash advances for luxury items are no different. So, the latest flat-screen television would likely be an issue, and so would trying your luck at the slot machines, but paying for food and utilities should be okay.

If not, the trustee can seek to dismiss your case, resulting in losing the protection of the automatic stay. The trustee can accept your bankruptcy, but it also requires that you pay back that debt. The worst-case scenario is that the trustee considers it bankruptcy fraud and refers the case to the U.S. Trustee’s Office, a branch of the Department of Justice.

Paying Your Bankruptcy Lawyer With Your Credit Card

Whether a bankruptcy lawyer can be paid with a credit card tends to come up. So, I’ll answer that question with “it depends.”

Whose credit card? Friends or family members? Then it’s not an issue. The debtor’s credit card? No! Since I tend to be sarcastic, this is where I ask clients why not quadruple my attorney’s fees if they aren’t paying for it anyway. That usually answers their question, and I hope it answers yours.

You can learn more about filing for bankruptcy and the bankruptcy petition via this link. Information on the bankruptcy court system, contact information for trustees, and your state’s exemptions can be found here. The federal bankruptcy exemptions are listed here. The latest version of the 341 Meeting of the Creditors can be found here.

Colleges and universities can purchase my bankruptcy law textbook directly from Routledge Publishing. For paralegals and students buying single copies, you can do so via Amazon Books. To access my YouTube channel, click this link.

Additional blog content is available below:

• Bankruptcy
• Your Wallet

Please note that the information on this site does not constitute legal advice and should be considered for informational purposes only.

Updated April 1, 2025.

Updated on September 2, 2025.