Claiming bankruptcy is a difficult time for anyone and contrary to what you might think, it is actually rather expensive. The cost of filing, legal fees, financial education classes, etc. totals quite a hefty amount, leaving day-to-day expenses difficult to manage. While it is not recommended to pay rent and utilities with a credit card, it may be a last resort for some. In any event, there is no denying that credit cards are invaluable in an emergency – a broken water tank flooding the house or a boiler breaking down in the middle of winter needs to be deal with immediately, regardless of your financial situation. But the question you might have is, can I use credit cards while filing for bankruptcy?
The basic answer to this is ‘no’, but like most things, there are exceptions…
At the start of the personal bankruptcy process, you will be required to list all your creditors. This, of course, includes all your credit cards. It is imperative that all cards are disclosed at the start of the process as it is incredibly difficult and time consuming to amend the list of creditors at a later date. Many people do wish to keep at least one credit card for emergencies and do not want to list it as one of their creditors but any qualified bankruptcy attorney will warn you not to omit any creditors from the list as it could be considered as fraud. If this is the case, the creditor would have the right to approach the trustee and get the whole bankruptcy claim dismissed. As well as being a waste of time and money on behalf of the debtor, this also means that you will need to wait a minimum of 180days until you can apply for a new bankruptcy discharge. During this time the stay is revoked and creditors are once again free to come after you for any outstanding debts.
The only way that you will be able to keep a credit card through your bankruptcy is if it has a balance of zero. This doesn’t mean that you can pay off one of your credit cards prior to declaring yourself bankrupt, as that could be seen as ‘Fraudulent Preference’ which may result in your application for bankruptcy being dismissed. However, if you have had a credit card that has had a zero balance for a long period of time, you should be able to exclude this from the list of creditors and keep the card for use while filing bankruptcy.
Since credit card debt is dischargeable, many people mistakenly believe it is a good idea to rack up as much debt as possible prior to the bankruptcy proceeding. You should very carefully consider how to deal with your credit cards prior to the start of the bankruptcy process as some items will not be included in the discharge of credit card debts, such as:
• $500+ spent on luxury goods within 90 days of filing for bankruptcy
• $750+ withdrawn as a cash advance within 70 days of filing for bankruptcy
After your bankruptcy procedure is complete you will be inundated with credit card applications and while it may seem like a good decision, you should be very careful about resuming the bad habit of charging everything on your card and racking up more debt. The mandatory financial education class you are required to take as part of the bankruptcy process will inform you that credit card debt accumulated after the filing will not be included in the discharge, unless you declare bankruptcy again. As it takes a minimum of two years before you can file for Chapter 13 or six years for Chapter 7, you will be responsible for those accumulated debts until then.
Bankruptcy is not something to be considered lightly and an initial consultation with a qualified bankruptcy attorney should clear up any confusion you may have about what is permitted and what is not. That being said, both attorneys and financial advisors will inform you that it is not allowed to use a credit card while filing for bankruptcy, but that the exception of a zero balance card does exist. It is worth keeping in mind that while credit cards are good to have in emergencies, they are known for getting people into financial trouble and any debts you accumulate on your credit card while filing for bankruptcy will not be able to be discharged for a minimum of two years.
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