Debts a debtor runs up shortly before filing get extra scrutiny. Trustees look at the last few months of credit card statements. Creditors look too, and a creditor can ask the court to find that a particular debt cannot be discharged. For a bankruptcy petition preparer or virtual bankruptcy assistant (VBA), understanding credit card charges before bankruptcy means you can spot the statements that need the attorney's attention before the petition is filed.
This guide explains the rules in plain language, shows what to look for in a debtor's statements, and describes how to flag problems without giving legal advice.
The idea behind the rule
A debtor who charges up credit cards while planning to file bankruptcy, with no intention of paying, is not acting in good faith. The Bankruptcy Code lets a creditor challenge the discharge of a debt obtained by fraud or false pretenses. To make this easier for creditors in the most common situations, the law also creates two presumptions for charges close to the filing date. Under 11 U.S.C. §523(a)(2)(C), a debt can be presumed nondischargeable when it is:
- Luxury goods or services (as opposed to items reasonably needed for the support of the debtor or dependents) bought from a single creditor, above a dollar threshold, within about 90 days before the case is filed; or
- Cash advances on an open-end credit card above a dollar threshold, taken within about 70 days before filing.
The dollar thresholds are adjusted every three years for inflation. Do not rely on a number you remember from a training video or an old article. Ask the attorney for the current figures, or check the current adjustment table published by the Judicial Conference and in the statute.
A presumption is not a verdict
Three things matter for how you talk about this:
- A presumption can be rebutted. The debtor may be able to show the charges were not made with intent to defraud.
- Charges outside the windows, or below the thresholds, are not automatically safe. A creditor can still argue fraud based on the facts.
- The creditor has to take action. It must file a complaint with the court within a deadline measured from the first date set for the meeting of creditors, and the debtor has the chance to respond.
That is why the attorney, not the preparer, decides how to handle the issue. Your role is to surface the facts early.
Credit card charges before bankruptcy: what to look for in the statements
Ask for every credit card statement for the last six months (and any card statements that include the three months before filing), then review them for these patterns:
| What you see | Why it may matter |
|---|---|
| Large cash advances or ATM withdrawals on a card | The cash-advance window is shorter and the dollar limit lower than for luxury purchases |
| Big-ticket purchases (jewelry, electronics, luxury travel, expensive dining) | These are the classic luxury items |
| Balance transfers or paying off one card with another | May look like shifting debt that wasn't going to be paid |
| Gift cards, money orders, or payments to family bought with credit | Raises questions about where the value went |
| A sudden spike in spending after the debtor started talking to attorneys | Suggests charging up before filing |
| Regular purchases of groceries, gas, utilities, medical care, and childcare | Usually ordinary living expenses; note them so the attorney can see the context |
Remember that ordinary living expenses put on a card are generally treated very differently from luxury purchases. Groceries, gas, utilities, and medical bills are typically not the problem. What gets attention is unusual, large, or non-essential spending.
What goes on the petition
The Statement of Financial Affairs asks about payments to creditors, transfers, gifts, and losses in the period before filing. Debtors often leave these answers blank because they don't understand what is being asked. Review each question against the bank and card statements, and make sure every recent payment, transfer, or gift the debtor reports is consistent with the statements. Our guide on petition prep work before initial input explains how to organize the information up front.
How to flag it for the attorney
Write a short, factual note. Example:
Issue for attorney review: Card ending in [last 4] shows [number] cash advances totaling [$] between [date] and [date], and a charge of [$] at [merchant] on [date]. Debtor says the cash was used for [reason given]. Statements attached. The filing date is currently planned for [date].
Notice what it does not do: it does not say the charges are or aren't a problem, and it does not tell the debtor what to do. Timing questions, for instance whether it makes sense to wait before filing, are decisions for the attorney. If a debtor asks you about it, use the scripts in Unauthorized Practice of Law.
Never help hide anything
A debtor may ask you to leave a recent charge off, or to describe a purchase differently. Don't. Knowingly concealing or misstating information in a bankruptcy case is a federal crime, and a preparer who helps can be held responsible. If you are asked, say the attorney needs to know, and tell the attorney. For insiders and family payments, see A Typical Example of an Insider Debt in Bankruptcy.
Make sure nothing slips through. A bankruptcy petition review checks the Statement of Financial Affairs and the rest of your draft for the items most often left blank or inconsistent. To master every schedule and statement, explore our Chapter 7 & 13 Bankruptcy Petition Specialist Certification.
Frequently asked questions
Are groceries and gas on a credit card a problem?
Ordinary living expenses are generally viewed differently from luxury purchases. Note them for context, and let the attorney decide.
What is the cash-advance window?
The statute uses a shorter look-back for cash advances than for luxury purchases, and both limits are adjusted for inflation. Check the current figures instead of relying on a remembered number.
Can a debtor avoid the issue by waiting to file?
That is a legal strategy question for the attorney, not something a preparer should advise on.
What if the debtor disagrees that a charge is luxury?
Record the debtor's explanation and the supporting documents, and flag it. The attorney decides how to respond.
This article is general education for bankruptcy professionals, not legal advice. Statutory thresholds, look-back periods, and deadlines change, and the treatment of a given debt depends on the facts. Confirm current law with the supervising attorney. Questions about our courses? See the FAQ.