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Should you spend money right before you file for bankruptcy?

On Behalf of | Apr 27, 2022 | Chapter 7

You’ve been thinking about filing for bankruptcy for months. Maybe you have a lot of outstanding medical debt, which is an incredibly common reason for bankruptcy, or maybe you have credit card debt. No matter how you got it, you realize that you can’t pay it off on your own, so you’re looking into bankruptcy as a way to eliminate that debt.

Once you decide to do it, does that mean that you should start spending money on your credit cards? If you’re going to erase your debt anyway, why not bring the credit cards up as high as you can before you do so? Some people believe that this is a wise idea because they consider bankruptcy to be inevitable and they view this as free money that will be forgiven shortly anyway.

This may be bankruptcy fraud

No matter how enticing this sounds, you never want to do it. It can be viewed as bankruptcy fraud. The court will essentially see that you have been spending money with the full knowledge that you would never even attempt to pay it back, and that’s an abuse of the bankruptcy system. This could cause your case to be thrown out and then you won’t get the bankruptcy relief that you need.

That doesn’t mean you can’t spend money at all. There are certainly many things that you may need to buy in between the time when you file for bankruptcy and when that filing is complete. It can take months to go through this process. You still have to do things like buying food or paying for the utilities. All of this normal spending is fine and you don’t have to worry about using credit cards to do so.

The problem just comes when there is a significant and notable increase in your spending right before you file. That’s what makes it look to the court like you are trying to commit fraud, so that is what you want to avoid.

Navigating the system

If you are considering bankruptcy, you should know that the system can be somewhat complex and it’s important to do everything correctly, so you need to know exactly what legal steps to take.