Charging Credit Cards

Debts incurred through fraud may not be eliminated in bankruptcy if your creditor files an adversary lawsuit and proves that the debt was incurred through fraud.  Fraud, in this context, refers to a legal definition of fraud that includes a promise without the intention to perform it. Fraud, in the legal context, includes, among other things, the making of a promise without the intention of performing it.

Charging Credit Cards Before Bankruptcy Can Be a Form of Fraud

Some people are under the mistaken belief that the only prohibition on charging credit cards is that they are prohibited from purchasing luxury goods on credit cards before bankruptcy, but that it is permissible to purchase ordinary, non-luxury goods.  This is a common misconception. 


Definitely, purchasing luxury goods on credit before bankruptcy is a bad idea.  As explained in my blog post entitled Laving Spending, if you purchase luxury goods on credit cards during the 90-day period before filing for relief and your creditor files an adversary lawsuit alleging fraud, then the bankruptcy law creates a presumption that the charges were incurred through fraud.  This is a presumption that shifts the burden of proof onto, so that you have to prove that you did not have fraudulent intent or else the credit card debt is presumed to be incurred through fraud.  If you cannot prove lack of fraudulent intent, then your creditor wins the adversary lawsuit and the credit card charges become nondischargeable and you will owe them forever.  Clearly, you do not want to be purchasing luxury goods on credit cards before bankruptcy.


But even if you buy ordinary, non-luxury goods on credit before you file, this can be a big problem, especially if you never make any payments after you make a large purchase.  While there is no presumption of fraud, your credit card lender can still file an adversary lawsuit against you and affirmatively prove (the burden of proof would be on your creditor) that at the time that you incurred the debt you did not have the intention to repay it, which is a form of fraud.  How would your lender prove this?  It may not be that difficult.  For example, if you retained a lawyer to file bankruptcy and during the time between when you retained your lawyer and the date that you filed bankruptcy you made credit card charges, any reasonable person would agree that when you made the charges you already knew that you were going to file bankruptcy.  Hence, your creditor could argue, and the Court could make a determination, that at the time that you made the credit card charges you did not have an intention to repay the charges, or, otherwise stated, when you charged your credit card you were making a false promise to repay the charges.

So, in conclusion, you should not charge up your credit cards before filing bankruptcy.  From the point that you know you are going to file and eliminate your debts, you should immediately stop using your cards.  Otherwise, you could be found to have made the charges without the intention of repaying them, and your lender could plead and prove that in an adversary lawsuit and obtain a ruling that your credit card debt is nondischargeable in your case.  So before going and charging credit cards before bankruptcy, think twice.  You could be hindering or jeopardizing your ability to eliminate credit card debt and get a fresh start.