Credit cards are a key financial tool that help people to cover necessary expenses even when they have budgetary shortfalls. The responsible use of credit cards typically involves paying off the full balance every month. Those who accrue balances end up paying huge amounts of interest and may end up incurring other fees, like over-limit fees, on their growing balances.
Some people end up turning to personal bankruptcy to reduce or eliminate their credit card debt. However, what someone does with their credit cards prior to filing could have an influence on how much benefit they derive from the process.
Excessive credit card use could lead to challenges
In theory, individuals filing for bankruptcy can avoid collection activity after receiving an automatic stay and can discharge what they owe on the credit card and other unsecured debts. However, individual creditors can object to the inclusion of their accounts or to a portion of the debt owed based on the behavior of the person filing.
Someone who adds substantially to their credit card balances shortly before filing for bankruptcy could potentially face a challenge from the credit card companies. Continuing to use a credit card sparingly for the same expenses as always may not trigger much scrutiny, but excessive spending could lead to complications. Those who spend a large amount in credit, exceeding what they usually utilize, in the weeks prior to their bankruptcy filing could face pushback from the company.
Allegations of fraud can derail the process
When a creditor claims that someone engaged in fraudulent activity, such as using a credit card when they had already intended to file for bankruptcy and would therefore not repay what they borrowed, those allegations can end up doing real harm to someone’s chances of securing a full discharge of their debts. Evidence that someone chose an emergency filing, such as proof of service from a lawsuit by a different creditor, might be one way to respond to allegations of fraud in relation to someone’s use of credit prior to a bankruptcy filing.
Although it can be difficult to stop using credit cards prior to a bankruptcy filing, doing so can help ease the transition into the bankruptcy process, as lenders will freeze and close revolving lines of credit when someone files. Learning more about the challenges someone might face during the bankruptcy process can help those struggling with debt plan the right path forward.
Please contact the Law Office of Russell Gary Small, P.C. through this link or by calling (203) 594-6655 to learn how we can help you.