Here’s the dilemma: Is it ok to rack up credit card debt before I file for bankruptcy? Is it Ethical?

Bankruptcy is a financial strategy that individuals often resort to when the burden of debt is too much. Bankruptcy offers a fresh start by liquidating assets or creating a repayment plan. However, the question arises: Is it ethical to rack up credit card debt right before you file for bankruptcy? This problem raises moral, legal, and practical considerations.

The bankruptcy courts and laws were designed to help the honest, but unfortunate debtor. Bankruptcy provides relief for debtors burdened by unmanageable financial obligations. There are different types of bankruptcy, each with its eligibility criteria and consequences.

  • A Chapter 7 is used by individuals or businesses who do not have too high of an income or have large business debt. A Chapter 7 case will require a debtor to turn over non-exempt assets in exchange for discharging your debts. In a business Chapter 7, the business will be closed and the assets of the business will be sold. In a personal Chapter 7, a debtor will have the opportunity to turn over non-exempt assets or buy the non-exempt assets back.
  • A Chapter 13 is only for individuals or married couples and involves creating a repayment plan to reorganize your debts. A Chapter 13 is where debtors can also catch up on mortgage payments or car payments before foreclosure or repossession take place. A Chapter 13 is also for debtors with too much income to file for a Chapter 13.

The Temptation of Credit Card Debt

Some individuals consider racking up credit card debt before filing for bankruptcy as a strategic move. You may think that since credit card debts are typically dischargeable, maxing out your credit cards could help address other financial burdens, such as medical bills or mortgage arrears. However, this approach raises ethical concerns and possible legal problems for your bankruptcy.

Ethical Considerations

From an ethical standpoint, deliberately running up credit card debt with the intention of discharging it through bankruptcy raises questions of honesty and fairness. Again, since bankruptcy is to help the honest, but unfortunate debtor, running up credit card debt can raise some eyebrows.  Engaging in behavior such a racking up credit card debt can be seen as exploiting the system and failing to fulfill financial obligations. The bankruptcy courts are able to review your financial situation backwards up to two (2) years. This means any actions you take in the two years before you file bankruptcy can be scrutinized by the bankruptcy court.

Legal Implications

Bankruptcy laws include provisions to prevent abuse and fraud. Courts will review financial transactions that led up to a bankruptcy filing. If there are questions about whether a debtor engaged in fraudulent or deceptive practices, such as incurring debt without intent to repay, the court may deny your discharge or impose penalties, such as fines and/or prison terms. Therefore, racking up credit card debt with the sole purpose of discharging it through bankruptcy could have significant legal consequences.

There are many stories that hit the headlines regarding bankruptcy fraud and the legal penalties people face when filing bankruptcy while not being honest. Many of the headlines are made by celebrities regarding their bankruptcy fraud cases. Other stories include the most extreme examples of credit card fraud. Here are just a few:

Practical Challenges

Even if you are able to discharge credit card debt through bankruptcy, the process still includes some financial and emotional costs. Bankruptcy affects credit scores. This means that unless your work extremely hard in improving your credit score after your bankruptcy is completed, it could be challenging to obtain a loan or secure favorable interest rates in the future. Improving your credit score after bankruptcy is similar to having a goal of losing weight – some people can work diligently toward their goals with hard work and dedication.

Here are Feher Law’s articles about how to improve your credit score after your bankruptcy:

Alternative Solutions

There are non-bankruptcy options out there including negotiating with creditors, enrolling in debt management programs, or seeking assistance from credit counseling agencies. It is important to understand that each option has its own challenges and concerns. Negotiating with creditors could require a large lump sum payment and a tax penalty at the end of the year. Debt management programs often do not disclose their payment structure and the legal issues that arise while you are in a debt management program. Credit counseling programs offer insights on how to pay down debt which often requires additional income that some people do not have.


The decision to accumulate credit card debt before filing for bankruptcy is not merely a financial one but also a moral and ethical dilemma. While bankruptcy offers a lifeline to individuals drowning in debt, it should not be exploited as a loophole to evade financial responsibilities. Instead, individuals should seek ethical and sustainable solutions to address their financial challenges, prioritizing honesty, integrity, and accountability in their actions.

To review your financial situation, schedule a consultation with Feher Law by using our website HERE or call our office at 727-359-0367.