Using Your Credit Card Before Bankruptcy. Is There Any Risk?

Are you tempted to spend as much as possible on your credit card before you declare bankruptcy?

Here’s why this could be a massive mistake.

You might be dealing with insurmountable levels of debt and you could have decided that bankruptcy is now your only option.

Since bankruptcy is a fresh start, you might think that a great idea is to spend as much as possible and max out your credit cards.

You could even take out some cash advances and then use this to pay for the cost of your bankruptcy.

Is this even a possibility?

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Is It Legal?

This is the best place to start because the truth is that maxing out your credit cards just before you are going to file for bankruptcy isn’t even legal.

You’re spending money that you know without a doubt, you won’t be able to afford to pay back and that’s fraud.

If you are found guilty of fraud, then you could even face jail time.

As such, it’s never a smart move to spend as much as possible before you declare bankruptcy.

How Much Risk Is There Here?

In reality, it’s unlikely that you will go to jail for using your credit card before you declare bankruptcy.

However, that doesn’t mean that you are completely free and in the clear here.

When you declare bankruptcy, your creditors will be notified.

They will send a list of your transactions to the trustee.

This includes any credit card activity over the past three months.

If there are any large transactions within the last three months, they will go over your credit history for the past few years and determine whether this type of spending is typical for you.

They will then take action based on their findings.

This could include requesting that you pay back the money.

It’s worth noting that debt due to fraud is not discharged when you are declared bankrupt.

So, if you don’t pay back the money, then they can sue you or garnish your wages to get the money they are owed.

They can also stop the discharge completely through a court hearing.

Usually, at a court hearing, you will be ordered to pay all or some of the money that you spent on your credit card three months before filing for bankruptcy.

Particularly, if these purchases were completely out of character.

Remember, every purchase that you complete on a credit card is recorded.

As such, there’s no way to sneakily borrow before you are declared bankrupt.

The credit card company will always have a record of your activity.

So, they will notice if your monthly spending suddenly jumps up by more than a few thousand.

If you are in financial trouble, then you need to explore other actions instead.

For instance, you need to better manage your budget so that your debt isn’t building before you claim.

You also need to explore different options for debt relief and we can help there.

Contact us today and we will ensure that you find the right path to break free from your debt based on your financial situation.

Canadian Bankruptcies

How to File for Bankruptcy
What is Bankruptcy?
Bankruptcy FAQs
How Does Bankruptcy Work?
What is the Cost of Bankruptcy in Canada?
How to Rebuild Credit Following Bankruptcy
Personal Bankruptcy in Canada
What Debts are Erased in Bankruptcy?

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