Credit Card Debt and Bankruptcy

After the winter holidays, credit card bills start rolling in and consumers see how purchasing a few holiday gifts can add up to a lot of debt. For people who are already struggling to manage their day-to-day expenses, additional credit card debt incurred over the holidays can be a factor in their decision to file bankruptcy.

Consumers should be aware that certain credit card debt may not be dischargeable in bankruptcy. Under current (January 2014) bankruptcy law, the following types of credit card debt are presumed to be fraudulent and may not be dischargeable in bankruptcy:

  1. Purchase of services or luxury items totaling $650 incurred on a single credit card within 90 days of filing bankruptcy. Luxury items are generally defined as “nonessential” items, and include such things as vacations, jewelry, electronics, and household furnishings. “Essential” items include such things as gas, groceries, and medical supplies.
  2. Cash advances totaling $925 made on a single credit card within 70 days prior to filing bankruptcy.

These restrictions are designed to prevent consumers who are having financial problems, or who plan to file bankruptcy, from incurring unsecured debt on credit cards which they know they cannot repay or have no intention of repaying.

As a general rule, it is a good idea for consumers to limit their credit card use to essential items only in the three months prior to filing bankruptcy. Otherwise, consumers may get stuck with debt they cannot discharge by filing bankruptcy.

Seeking the advice of a competent bankruptcy attorney is appropriate. Generally speaking, problems as described in this article can be resolved.

This article is for information purposes only and is not to be considered or substituted as legal advice. The information in this article is based on North Carolina state laws in effect at the time of posting.