Credit Card 90 Day Rule

Letter to “Ask Leon”

Will you explain the rules surrounding credit card use prior to filing chapter 7? The reason I ask is, I am a loan officer in Michigan and our mortgage business is a mess out here. I haven’t closed a loan in some time. I’ve been using credit cards to pay bills, buy groceries, gas and so on. I have a son that is chronically ill and although he is an adult and doesn’t live here, I give him money too when he misses work. My house is for sale and I’m moving into a co-op. So, I’ve stopped using my cards but I heard that if you use them 90 days prior to filing for bankruptcy, you can’t include that debt in the bankruptcy. Is that true?

Leon Says…

I’m truly sorry to hear about your difficulties. The answer to your question is: yes, and no. Charging $500 or more for luxury goods or services on an account within 90 days prior to bankruptcy is “presumed to be non dischargeable,” and cash advances of $750 or more within 70 days are also “presumed to be non dischargeable.” However, the burden is still on the creditor to go through all the trouble of filing a lawsuit in the bankruptcy court to seek a judgment of non-dischargability. If they fail to successfully bring an action, the debt gets discharged anyway. Those time frames, 90 days and 70 days, just mean that such debts are presumed to be non-dischargeable. That means the debtor has the burden of proof at trial to prove that the debt was not incurred fraudulently. It doesn’t stop a creditor from seeking non-dischargability on charges that were made a lot earlier than that, where the evidence indicates there was use of credit under fraudulent circumstances. Don’t think that waiting 90 days puts you in the clear. The only difference is a shift on who has the burden of proof at trial.