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Can I Max-Out/Run Up/Use My Credit Card Before I File Bankruptcy?
18 May 2017

As a bankruptcy attorney serving the City of Whittier, this question is commonly asked. To some, it seems odd. Why would a debtor who just filed bankruptcy ask when they could begin applying for more credit cards? The answer is simple:

A debtor should apply for credit cards and begin reestablishing their credit.

However, applying for new credit cards depends on the Bankruptcy Chapter (7 or 13) the debtor has filed for.

Chapter 13

In a Chapter 13 Bankruptcy, a debtor is committed to a five (5) year plan. Meaning, the bankruptcy case remains open for five years and the goal is to repay all debts incurred by the debtor at the time of filing of the petition pursuant to an approved plan. One of the requirements of the Chapter 13 plan states a debtor is not to assume loans (additional debt) in excess of $500 without Court approval. Thus, in a Chapter 13 bankruptcy, a debtor shall not apply for new credit cards (in excess of $500) without court approval.

Chapter 7

Conversely, in a Chapter 7, all debt that was incurred prior to the time of filing of the petition is to be discharged by the debtor by filing of the Chapter 7 bankruptcy petition filed for debtors residing within the City of Whittier. All debts incurred after filing of the petition cannot be included and are not discharged. Thus a debtor applying for credit cards after the time of filing is permitted, as it has no bearing on the case.

Debtors filing Chapter 7 bankruptcy within the City of Whittier will commonly begin receiving credit offers solicited by mail following the filing of their Chapter 7 bankruptcy petition. Although the interest rates may be a little higher than normal or the credit lines may be lower than normal, I always encourage responsible debtors to apply and obtain these credit cards since it helps to reestablish the debtor’s credit. Keep in mind, the new debt incurred on these credit cards are not dischargeable.

As a creditor, debtors who file for Chapter 7 and thereby discharge their previous debt, and who have a source of income are more favorable to a creditor deciding to lend or issue a line of credit versus an individual who is overwhelmed with debt and is on the verge of filing for bankruptcy. Creditors view the above scenario in this fashion because a debtor who obtains a discharge under a Chapter 7 bankruptcy cannot obtain a second discharge for eight (8) years. Thus, the creditor’s loan/credit line extended to the debtor is secure (for at least eight years in many cases).

Conclusion

It is crucial to select an experienced Bankruptcy Attorney. Whittier City attorney Gregory E. Nassar is an experienced Bankruptcy Lawyer gladly serving Whittier City, and other cities within Orange County, Riverside County, Los Angeles County, and San Bernardino County. Attorney Gregory E. Nassar will review the case, carefully evaluating all the circumstances of client to determine the best route to solving the client’s financial detriment.

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