Can I File Bankruptcy Even After Recent Use of Credit Cards?

   Many people trying to deal with a financial crisis will turn to credit cards and credit card cash advances as a means to pay their bills.  As you might imagine, credit card companies will look for ways to challenge your bankruptcy if your account shows a pattern of charges during the months prior to your bankruptcy filing.

   At Clark & Washington, we are prepared to fight for your right to discharge every dollar of debt that the law allows.  At the same time, our lawyers and staff will advise you when you are most at risk for a challenge and how we use our extensive knowledge about bankruptcy litigation and credit card company bankruptcy tactics to avoid problems.

Challenges to Your Case: the Risk Factors

   You are most at risk for a challenge if you have used credit cards or took a cash advance within the three months prior to filing for bankruptcy.  Click here to read more about Bankruptcy Code Section 523(a)(2).  As a rule, you can avoid most challenges to your bankruptcy case if we hold off on filing your case until at least 3 months has passed since your last use of any credit card.

   If you absolutely have to file immediately, we can do so as long as you understand that there is an increased risk that some or all of your recent credit card debt may not be discharged.

   Once we are outside the three month "lookback" period, the chances that we will face a challenge go down. However, a credit card lender can still challenge your bankruptcy - even after the three month period - if it can show that you had no "reasonable expectation of repayment" when you used the card or took out a cash advance.

Here is an example:

1) Tom lost his job in February, 2006 and has been unemployed since.

In June, Tom took a cash advance from a Citibank Mastercard in the amount of $1,000.

In  July, he took a cash advance from the same Citibank Mastercard in the amount of $7,500. 

In September and October, Tom used his American Express to buy groceries only, charging $950 during this time.

On December 3, 2006, Tom took a cash advance of $3,000 from his Discover Card.

On January 5, 2007, he used a Visa card buy groceries. 

Tom filed Chapter 7 on January 15, 2007.

Clark & Washington analysis:

The Visa card groceries purchase is probably ok because it was for necessities, even though it was taken only 10 days prior to filing

The December cash advance of $3,000 will likely be challenged successfully by Discover because it was made within 70 days of filing.

The September/October Amex grocery purchases are not luxury purchases and they were made outside the 3 month lookback.  However, in September, Tom did not have any reason to think he could repay this debt and American Express has a reputation for aggressively pursuing discharge complaints.
The June and July cash advances from the Citibank Mastercard could go either way.  If all we had was a $1,000 June cash advance it is unlikely that Citibank would take the time and effort to pursue a discharge complaint.  However, the two advances together total $8,500, which makes a Citibank challenge more likely. 

As you can see, there are a number of factors that come into play:

• what was your employment status during the year prior to filing bankruptcy
• does your pattern of use of credit cards within the year prior to filing differ from previous patterns of use?
• have you been making any payments on your charges in the months prior to filing?
• were your purchases primarily for food, clothing and other necessities or did you buy presents and take trips?
• do you have receipts showing what you did with the money?
• do you show more credit card purchases or cash advances?
• do you need to file now, or can we wait a few weeks or even a month or two?