Confused about using credit cards before filing for bankruptcy in Missouri? We explore the legalities and offer guidance.
In Missouri, facing overwhelming credit card debt can feel like a dead end. You might be wondering if you can still use your credit cards before filing for bankruptcy.
Here at Debt Doctors of Missouri, we understand the complexities of financial hardship. This blog will explore the legalities of credit card usage before bankruptcy in Missouri and offer alternative solutions to consider.
Can You Use Credit Cards Before Filing for Bankruptcy in Missouri?
Technically, there's no legal prohibition on using credit cards before filing for bankruptcy in Missouri. However, it's crucial to understand the potential consequences. Bankruptcy fraud occurs when you incur debt with the intent to not repay it through bankruptcy. If you max out your cards shortly before filing, creditors may challenge the discharge of those debts, forcing you to repay them. Purchases of luxury items (over $725 in 2024) within 90 days of filing can also be challenged by creditors. The burden falls on you to prove the purchases were necessary.
The Risks of Using Credit Cards Before Bankruptcy
While bankruptcy can discharge most unsecured debts, like credit card debt, there are some situations where creditors might challenge the discharge of certain charges. Here are some key things to consider:
- Non-Dischargeable Debt: Bankruptcy typically discharges most debts, including credit cards. However, creditors can challenge the discharge of specific charges if they believe you incurred them with the intention of not repaying them (fraudulent intent). This challenge applies to:
- Cash advances: If you take cash advances totaling over $1,450 (as of April 1, 2022) within 90 days of filing, they might not be discharged.
- Luxury goods: Creditors can object to discharging debts exceeding $725 for luxury items purchased within 90 days of filing.
- Negative Impact on Credit Score: Even if you plan to file for bankruptcy, using credit cards before filing can further damage your credit score. High credit utilization (the percentage of your credit limit used) negatively impacts your score.
Alternatives to Using Credit Cards Before Bankruptcy
While using credit cards before bankruptcy isn't illegal, it's generally not recommended. There are smarter strategies to manage your debt before filing. First, stop using your credit cards altogether to avoid adding to your burden. Focus on making at least the minimum payments to prevent late fees and penalties.
Consider seeking help from a non-profit credit counselor. Non-profit credit counseling agencies can be a valuable resource. They offer free consultations and can help you create a debt management plan (DMP). A DMP consolidates your debts into a single monthly payment, often with negotiated lower interest rates, making them more manageable.
Another option is a debt consolidation loan, which combines your debts into a single, lower-interest loan, simplifying your payments and potentially saving you money. Remember, these options are most effective before you file for bankruptcy. Once you've decided to pursue bankruptcy, using credit cards becomes less advantageous.
What Type of Bankruptcy Is Best for Your Situation?
While bankruptcy can offer relief from overwhelming debt, there are two main paths to consider: Chapter 7 and Chapter 13. Chapter 7 eliminates most unsecured debt like credit cards and medical bills, but it might require selling some non-exempt assets to pay creditors. Missouri law protects a good portion of your belongings, and the process is typically quicker, taking 3-6 months. However, Chapter 7 stays on your credit report for 10 years. Chapter 13 creates a 3-5 year repayment plan where you keep your assets and use a portion of your income to repay debts. This option is ideal for catching up on missed secured debt payments like mortgages or car loans, but it requires more complex court involvement. If you have mostly unsecured debt and no valuable assets at risk, Chapter 7 might be the faster solution. If you want to save your house or car and have the income for a repayment plan, Chapter 13 could be a better fit.
Ultimately, consulting a Missouri bankruptcy attorney will help you navigate the legalities and choose the best chapter for your specific situation. Choosing the right bankruptcy chapter depends on your specific financial circumstances. A qualified bankruptcy attorney can assess your situation and recommend the best course of action.
Disadvantages of Filing Bankruptcy
Bankruptcy has some downsides to consider. First of all, filing for bankruptcy will have a negative impact on your credit score for several years. Also, obtaining credit after bankruptcy can be challenging, especially for larger loans like mortgages. Emergencies can be an even bigger problem when obtaining a loan is not possible. Lastly, filing for bankruptcy can be a stressful process, and it's important to be prepared emotionally.
Debunking Bankruptcy Myths
Many misconceptions surround bankruptcy. Here are some common myths debunked:
- Myth: Bankruptcy means losing everything. (Reality: Exemption laws in Missouri protect a significant portion of your assets.)
- Myth: You can only file for bankruptcy once. (Reality: There are waiting periods, but you can file again under certain circumstances.)
- Myth: Filing for bankruptcy ruins your life. (Reality: Bankruptcy can be a powerful tool for financial recovery and a fresh start.)
Contact Us to Help Alleviate Your Debt!
Debt Doctors of Missouri understands the emotional and financial strain of overwhelming debt. We offer free consultations to discuss your options and determine if filing bankruptcy in Missouri is the right solution for you. Don't hesitate to reach out! Contact us today to schedule a consultation and discuss your path to financial freedom.
