What To Do With Credit Cards Before Filing Bankruptcy Chapter 7
One of the good things about filing for Chapter 7 bankruptcy is that it eliminates your debts, which might include credit card charges.
If you’re considering filing for bankruptcy, it’s important to understand what will happen to your credit cards.
It’s time to stop using your credit cards once you’ve decided to file bankruptcy. The debts in your bankruptcy won’t necessarily be erased if you run up your credit card bills just before filing (and don’t even consider any luxury goods).
If you know you won’t be able to pay when you make the purchase, and yet you never planned to fulfill the obligation, a creditor might file an adversary proceeding, which is a lawsuit against you.
This lawsuit in the bankruptcy case will assume that you used your credit card right before bankruptcy without ever having the intention of repaying the credit card.
How are credit cards treated in a typical Chapter 7 bankruptcy?
A Chapter 7 bankruptcy filing is assigned to a bankruptcy trustee, who is tasked with administering your case and deciding what will happen with your total debt and any unprotected assets.
If there are unprotected assets, then once the trustee reduces those assets to cash otherwise known as a liquidation, then the trustee will use those liquidated funds to pay creditors a proportion of what they’re owed.
Only the bankruptcy trustee pays out money to the credit card company and other unsecured creditors (whether it be one creditor or many).
Which payments are made first?
Secured claims, (e.g. mortgage or car loan) get paid first on any asset that is liquidated that the creditor has a valid security interest in.
Priority claims, such as outstanding tax obligations and back domestic support obligations, are then paid.
Nonpriority, unsecured debts such as credit card balances and medical expenditures are paid last.
When to stop using credit cards before filing Chapter 7
If feasible, everyone should stop using their cards entirely if they have money problems. Owing money to either one single creditor or many creditors will not be solved using your card again and again. This works briefly but makes things worse in the long run.
Remember the use of a card is only healthy when you can pay it completely with a part of your total monthly income.
Is it time to file for bankruptcy?
If you feel like you’re sinking in quicksand, maybe it’s time to obtain a bankruptcy discharge.
Remember that once you file for bankruptcy, most credit card companies will thoroughly examine all of your purchases and other activity on the account.
Any debt you incur after you file bankruptcy will not be part of the bankruptcy and you will be required to repay it.
Will a credit card company discharge me during my Chapter 7 bankruptcy?
The goal of bankruptcy is to relieve individuals of personal responsibility for their financial obligations.
The success rate for discharging unsecured debts such as your cards through Chapter 7 is an amazing 95.3% (you can read more about this HERE).
All of your unsecured creditors must be treated equally under the Bankruptcy Code. You can’t make yourself favor one credit card firm by making a large payment before submitting your bankruptcy filing.
If you do, your bankruptcy trustee might reverse the payment and distribute the money among your creditors.
Cases when a bankruptcy petition cannot be filed
Not everyone is eligible for Chapter 7 bankruptcy. You are not qualified if you have filed for bankruptcy in the last eight years.
If you have been convicted of a federal felony or fraud in the last five years, you may not be eligible.
Finally, if your previous case was dismissed due to willful failure to comply with court orders, filing for bankruptcy may be ineffective.
Fraud and bankruptcy protection
Under bankruptcy law, any debt obtained by deceit, misrepresentation, or false promises is not dischargeable.
This includes charges or cash advances you didn’t intend to pay back when you used your card.
Because they must show that you had no intention to pay back the debt when you incurred it, companies like Visa or MasterCard may have a difficult time establishing fraud in bankruptcy court.
However, in certain cases, the card company has an easier time because the legislation presumes that your charges or cash advances were fraudulent if you used the credit card for non-essential items or luxury items within the 90 days preceding the bankruptcy case filing.
When will the bankruptcy code presume fraud and nondischargeable debts?
If you’re seeking debt relief that works, keep these two sorts of costs in mind and their probable worth. The figures apply to cases filed between April 1, 2022, and March 31, 2025.
ONE. Luxury items within 90 days of bankruptcy
If you charge more than $800 on a single credit card for luxury goods or services within the 90 days before filing your bankruptcy, those debts are presumed to be nondischargeable.
TWO. Cash advances within 70 days of bankruptcy
If you make monthly cash advances of over $1,100 in total during the 70 days preceding your bankruptcy filing, those loans are assumed to be nondischargeable.
What to do when your credit card charges may not be erased
You can’t plan to erase any new debt without getting rid of the old one. Fortunately, there are other ways to get debt relief if your card companies are not discharged from bankruptcy.
The first one is to limit your credit card use and rely solely on cash for critical purchases. An obvious goal is that you need to forget about luxury goods.
If you have a few isolated debts that are not erased in bankruptcy, you may be able to pay these off over time without having to declare bankruptcy again.
The snowball method
Use the debt avalanche approach to pay off one credit card while making minimum payments on all other cards.
You may use your excess cash to begin paying:
- Either the highest-interest-rate debt first
- Or the debt with the smallest amount first
If you have excellent credit, you may transfer your outstanding balance to a new card with a lower interest rate. Some cards offer 0% annual percentage rates for a certain period and do not charge any balance transfer costs for the first few months. To obtain such a no-fee, low-rate card, you’ll need a decent score.
Debt management plans
You could also sign up for a management plan that includes the services of a credit counselor. Think about using professional help to learn specific information related to filing bankruptcy.
A counselor can assist you in several ways:
- developing a strategy
- dealing with creditors
What to do if credit card debts keep growing?
When your card balance just seems to keep going against you, you might consider hiring a bankruptcy lawyer to see if they can help you file a bankruptcy case.
Bankruptcy filings can be done on your own, but going to a law firm and establishing a confidential attorney-client relationship might help you go back to sleep at night.
The premises of the attorney-client relationship
This relationship is different from a counseling service. In general, attorneys handle sensitive or confidential information daily.
An attorney’s ethical duty is to maintain a confidential relationship and not to disclose information without the client’s consent.
Your lawyer can give you objective advice about the pros and cons of bankruptcy. Since attorneys evaluate every case with knowledge of the law, they can tell you what type of bankruptcy might work best for your unique circumstances.
How to get a free evaluation by a bankruptcy attorney
Unfortunately, the internet isn’t necessarily secure to find out about the available services a law firm provides. Many websites are only interested in marketing purposes so they use pre-recorded messages or other automated technology for attorney advertising.
If you are thinking about filing for bankruptcy and erasing what you owe to your cards, we recommend you do a zip code search on Google and call the attorneys that are near you. It is better not to send text messages or emails.
Go and meet the attorneys in person and ask them for details on their services. Explain your case and ask for a free evaluation. Many attorneys will usually offer you a free initial consultation.
Be honest and tell them you need professional help. If you think they can handle your case, provide details of that which worries you.
Some attorneys can easily give you references for their services with other clients. You should check these references to make sure they are legitimate.
You can also ask the attorney for an estimate of how much their services might cost you. If you file with that attorney and he or she takes your case, provide them with information about the ways you will work with them.
Don’t let your credit card debt close the doors for you. Ask for help to file for bankruptcy!
Will a credit card company give me a new card after filing for bankruptcy?
Obtaining a new credit as soon as possible depends on the sort of bankruptcy you filed, as your bankruptcy must first be lifted. This might take anything from 6 months to 5 years.
What information can I give my bankruptcy attorney to help in my bankruptcy case?
Describe your situation in a few sentences. You may assist the bankruptcy attorney in evaluating your case by providing information regarding the kind of debts (like car loans, student loans for example), the estimated value of debts, and the important dates for your creditors.