When to Stop Using Credit Cards Before Filing for Chapter 7 Bankruptcy

The filing of Chapter 7 bankruptcy means you have debt problems too big to solve.

Once you decide to file, it’s never wise to use credit cards on unnecessary purchases like a TV or vacation. That type of spending will not show a bankruptcy judge that you are treating the process responsibly.

For that reason, the court may not discharge your liabilities in the bankruptcy proceedings, which means they remain your debt burden.

A credit card could be used for necessary expenses — things like food, utilities, rent or the mortgage. But in general, credit card use for luxuries or a cash advance should cease the day you start considering Chapter 7.

Can I Use Credit Cards Before Filing?

Once you’ve decided to file Chapter 7, credit card use should be restricted to necessary expenses you otherwise cannot afford. Groceries, gas to get to work or a job interview, car repairs, rent or mortgage, utility bills, items for a baby (food, diapers) are all considered necessary expenses.

There is basic logic to why using a credit card for unnecessary items is a bad idea once you’ve decided to file Chapter 7. Deciding to file for bankruptcy means you realize you are not able to pay your bills and meet your obligations. You admit you have tried everything prior to filing for bankruptcy and need the court’s help.

Using a credit card for vanity items or unnecessary expenses means you are buying items you know you can’t afford. If the amount exceeds a defined limit ($900), it will be automatically presumed to be fraudulent by the court. Other charges could also be challenged by creditors and ruled fraudulent.

Legitimate credit card charges – unsecured debts that are part of the bankruptcy court proceedings – are typically discharged in bankruptcy, meaning a court order releases you from the legal obligation to pay the credit card debt.

Fraudulent or unnecessary charges, though, will not be dismissed and will remain your responsibility. And that responsibility remains even after bankruptcy ends.

The best way to handle this is to keep a record of your financial situation leading up to filing, and the reason you charged necessary expenses. If those charges are questioned, you will then have proof to show they were needed.

When to Stop Using Credit Cards Before Filing

Because the courts will look back at your spending, it’s best (if possible) to stop using credit cards for unnecessary expenses at least 90 days before filing.

The look-back period for spending can be as little as 90 days or as long as one year. The time depends on the rules in the state where you filed and the creditor. Thus, the minimum time you should avoid using a credit card for unnecessary expenses is 90 days.

It’s complicated, which is why it’s always wise to consult with a bankruptcy attorney who can help navigate through the labyrinth of rules. An attorney could also provide sound advice on the safest time to stop credit card spending on unnecessary items.

Luxury Purchases vs. Necessary Purchases

Understanding the difference between luxury purchases and necessary ones is an important step in bankruptcy. The simplest way to gauge whether an expense is luxury or necessary is to ask: Do I absolutely need this to live?

We all need money for gas in the car to get to work or to take the kids to school. We also need the heat and electricity on, and we need to pay the rent or mortgage. Food is essential as well. Items like those are necessary purchases.

We can live without the new TV or couch or expensive concert tickets. Giving those things up may hurt, but it is important to do so to get yourself back on sound financial footing. Call it short-term pain for long-term gain.

Bankruptcy courts will differentiate between these two types of spending. Detailing in writing why expenses were necessary will help your case. Using the credit card for superfluous spending will not.

Racking Up Debt Before It’s Discharged

Using a credit card with the hope that the unnecessary charges will be discharged in bankruptcy is not a good idea. That indicates you did not intend to pay the debt and will be considered fraudulent.

If you can’t pay your bills, you shouldn’t be running up more debt.

The bankruptcy court is thorough. It will look at credit card activity and spending, and certain large expenses will be considered dischargeable because they are presumptive fraud.

As of April 1, 2025, U.S. bankruptcy law states that any single expense more than $900 within 90 days of filing is presumed nondischargeable. Same with cash advances on a credit card of more than $1,250 within 70 days of filing. The rules keep people from exploiting the bankruptcy system for non-essential items.

Let’s imagine you decide to buy a $1,200 TV shortly before filing Chapter 7. The court may look at that as fraudulent – why would you buy something that expensive when you are declaring you can’t pay the bills you have? That expense would be nondischargeable, and you still owe the $1,200.

Nondischargeable means you are responsible for the debt and for repayment, even after bankruptcy discharge. Beginning a new financial life with a large debt after bankruptcy is not helpful, and could lead to more financial challenges and potential legal issues.

Continuing unnecessary spending with credit cards prior to filing is a glaring example of what not to do before filing.

Presumptive Fraud & Bankruptcy

Presumptive fraud means the bankruptcy court determines that certain debts you have incurred are presumed to be fraudulent, meaning you must prove they were necessary expenses.

The bankruptcy code (law) includes a provision that presumptive fraud debts are not dischargeable. Charges judged as fraudulent remain your responsibility to pay even after bankruptcy ends.

Presumptive fraud means the court presumes you are trying to “game” the system. You then have the burden of proof to show that expenses were necessary. That’s not always easy, especially when the purchase is a non-essential luxury item.

Luxury goods – think that TV, a second car, a trip to Disney World or other items you really can live without – will be noticed. The threshold is that the “luxury” items cannot be more than $900 purchased within 90 days of filing for bankruptcy. Cash advances totaling more than $1,250 taken within 70 days of filing are another example of presumptive fraud.

Examples of Luxury Purchases & Presumptive Fraud

Any debt taken with the intent or hope that it will not be repaid could be considered fraudulent.

By filing for bankruptcy, you are declaring that you cannot pay your bills. Adding more debt to that clearly contradicts the reason for filing.

Items charged 90 days or less before filing that could lead to a judgment of presumptive fraud include high-end electronics, jewelry, vacations, or lavish entertainment expenses (did you really need to charge $400 for you and your wife to see the Rolling Stones when you’re facing bankruptcy?).

Even if the items are below the $900/$1,250 limits, cash advances taken less than 70 days before filing, purchases of non-essential goods, and spending patterns that suggest an intent to avoid repayment could be challenged by a creditor and judged as presumptive fraud by the court.

If that happens, you are obligated to prove they were not.

What Happens if You Commit Presumptive Fraud Before Bankruptcy?

The consequences of luxury spending on a credit card before filing for bankruptcy are significant. Among the fallout for those concert tickets, 48 days before filing are:

• Creditors can object to the discharge of specific debts. To obtain the fraud ruling, the creditor can file an adversary proceeding about specific debts.
• The charge remains on your ledger even after bankruptcy is discharged or ends. This means you will be responsible for the debt once you re-start your financial life. Instead of starting fresh, you’re starting with a large debt.
• If the debts are significantly frivolous, a court could deny the Chapter 7 filing. This means losing all the protections bankruptcy provides and leaving you with large debts you claimed you could not repay.

Legal penalties for knowingly committing fraud could include fines or even criminal charges in severe cases.

In short, bankruptcy courts do not look kindly on trying to use the system to decorate the man cave with a new TV and sound system.

Should I Max Out My Credit Card Before Filing?

Maxing out a credit card before filing for bankruptcy is not a good idea.

Charging items up to your spending limit, as assigned by the card, logically contradicts the reason for filing for bankruptcy. You’re filing for bankruptcy to say you can’t pay the debts you have. Adding to that debt with frivolous or unnecessary items shows you are not serious about repairing your financial situation.

If the creditor complains, the court could rule that the debt is not part of your bankruptcy discharge, meaning you’ll have to pay it, either now or in the future when the entire bankruptcy is discharged.

A judge who sees excessive charges prior to filing might even decide not to accept the Chapter 7 filing, leaving you in difficult financial straits.

The general rule is that unnecessary purchases that exceed $900 within 90 days of filing are presumed to be nondischargeable. Cash advances more than $1,250 within 70 days of filing will also make the court go ‘tilt.’

If in doubt, consult with an attorney about spending. One of the extenuating factors the court may ask for is whether you sought advice on some spending. If you did, it may help.

When Should I Stop Paying My Credit Card Balance?

If you know you are going to file for bankruptcy, you can stop paying credit card debt once you know you are approved. For Chapter 7, that means knowing you qualify for the means test.

Qualifying means your income average for the previous six months is below the state’s median income level where you filed, or if you cannot pay 25% of your unsecured debt within 60 months. The median income differs by state, but the national median is $69,243. Maryland has the country’s highest median at $90,203, and Mississippi has the lowest at $48,716.

Some people may feel it is a good step to stop paying credit card debt before they file. This brings risk, because if you do not qualify for Chapter 7, you have incurred more interest and fees you will have to pay.

The benefit of not making payments only presents itself if you wind up qualifying for Chapter 7. At that point, if you keep paying, you are throwing away money because you’re paying debt that bankruptcy should discharge.

The system is complicated, so the best approach is to speak with a bankruptcy attorney about your debts and get advice from him or her about the best time to stop paying. Doing it the wrong way can cost money in both cases.

Can I Get a New Credit Card After I File for Chapter 7 Bankruptcy?

Yes, in most cases, you can apply for a new credit after filing for bankruptcy, but you can’t do it without court approval. It’s wisest to wait until the final discharge of your Chapter 7 filing. That usually takes 4-6 months from the day you filed.

Chapter 7 will remain on your credit report 10 years after the filing, but its negative impact decreases over time. Those with a credit score of about 680 could see the score drop by 130-150 points. This happens because your payment history is a key factor in a credit score; by filing, you are showing you can’t make payments.

For those whose credit score has already been harmed by nonpayment, the score has already decreased. Thus, the impact of filing will be negative, but not as negative.

The best way to rebuild your credit score after final discharge is to get on a budget and practice sound financial habits. This means not spending more than you make and paying bills in full and on time. Those who repeat the same mistakes that led to the filing may wind up in the same dire situation.

Bankruptcy is a difficult option, but for those who must file, it presents an opportunity to re-establish their financial affairs on sound footing.

Additional Resources for Chapter 7 Bankruptcy

Here are some other resources related to Chapter 7 bankruptcy:

Anyone pondering bankruptcy would do well to discuss their situation in pre-bankruptcy credit counseling. This session is to help ensure you have explored every avenue before bankruptcy, and to help you understand bankruptcy if that is the last, best option for you.

One understandable fear for those filing for Chapter 7 is the lingering question: Can you file and keep your house? The answer for most Chapter 7 filings is yes – provided you are current on mortgage payments, or can catch up quickly.

There is no law against filing for bankruptcy more than once. In fact, if the situation is dire enough, filing for bankruptcy multiple times is permissible – though you will have to wait eight years from your previous Chapter 7 filing date to file Chapter 7 again.