Chapter 7 Bankruptcy and Credit Card Use

If you live downriver and plan to file Chapter 7 bankruptcy, you may want to pay close attention to how you use your credit cards. Credit cards can often provide a lifeline for the cash-strapped individual, but adding to your debt may be a bad idea. Learn about Chapter 7 bankruptcy and credit card use below.

Credit Cards Should be Used as Needed

As you approach filing bankruptcy, the question of credit cards will be on your mind. Most filers wonder if they should even use them at all. In short, yes. Bankruptcy courts have recognized that credit cards may be one of the only ways some Chapter 7 filers are able to meet their needs.

Notice the word ‘needs’. Using your cards to take care of yourself is perfectly acceptable. Stressing out over food, clothing, or shelter is not going to help your temporary debt problem. But use the cards wisely.

Do Not Go on a Spending Spree

Needs and wants are two very different things. Understanding this, it would be wise to avoid going on a spending spree with your cards. All too often, clients will spend frivolously on items they do not need, assuming the debt will be washed away when they file.

This is considered fraud, and the courts will not wipe out debt created by excessive spending prior to your filing.

The rules are fairly stringent. Spending $725 dollars or more on luxury goods and services in the 90 days prior to your Chapter 7 bankruptcy filing is considered fraud. For your bankruptcy case, consider luxury to mean anything that isn’t necessary.

Also, cash advances in excess of $1,000 70 days prior to your filing will also be seen as fraud, and the judge will deem this non-dischargeable debt.

Be sure to consult your Michigan bankruptcy attorney prior to making any decisions to purchase nonessential goods or services in the time leading up to filing your Chapter 7 case.

Remember Your Bankruptcy Chapter

It is important to understand the way your credit card debt will be treated in your case. Chapter 7 bankruptcy treats these debts differently than say, Chapter 13.

When it comes to Chapter 7, your goal is to have non-exempt assets liquidated in order to pay against qualifying debts. What remains of these debts will then be discharged completely. If you’re filing a Chapter 13 bankruptcy, you will have a payment plan in which you agree to pay a stipulated amount for three to five years. Depending on your situation, you might pay off only some of the debts or you may be responsible for all of them.

Because the amount you will be responsible for during and after your bankruptcy can vary, it is important to understand wise use of your credit cards.

Meet With a Downriver Bankruptcy Attorney

Southgate attorney Derek Jacques of The Mitten Law Firm is available to help you plan for and file your bankruptcy case. Contact us today for a no-obligation, confidential consultation.