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Making credit card purchases before you file for bankruptcy

Not everyone who decides to file for bankruptcy intends to or is able to do so immediately. If you are in this situation, there may still be a number of expenses that you have to cover. You may wonder if you can continue to use your credit card right up until you file.

According to the Bankruptcy Code, it depends. If you make charges on the card, the creditor could claim that the bankruptcy discharge should not include these amounts. Whether the court agrees with the creditor or rules in your favor could come down to the following factors:

Intention

If you have been making all your credit card payments up until this point and you plan to continue making payments up until the time that you file, your intention to pay may count. The creditor will have to prove that you used the card without intending to pay the bill. 

Purchases

What you buy makes a difference, too. The Bankruptcy Code states that there is a limit of $500 total on luxury products or services. You may also have cash advances totaling no more than $750. A product or service is a "luxury" if it is not something you or one of your dependents needs. For example, you can reasonably make the case that you had to buy food. The court is not likely to agree that you needed a new gaming console.

Timing

The creditor only has the ability to dispute the luxury purchases you make during the 90 days leading up to your bankruptcy. Regarding cash advances, any amounts over $750 that you withdraw in the 70 days prior to filing may count against you in court.

Even though you may feel you are within your rights, you could still run the risk of a dispute with a creditor in court if you continue making credit card purchases right up until you file for Chapter 7 bankruptcy.

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