Can I get away with maxing out my credit, filing for bankruptcy?

To Her Credit columnist Sally Herigstad
Sally Herigstad is a certified public accountant and the author of "Help! I Can't Pay My Bills: Surviving a Financial Crisis" (St. Martin's Press, 2006). She writes "To Her Credit," a weekly reader Q&A column about issues involving women, credit and debt, for, and also wrote for MSN Money, and, and has guested on Martha Stewart Radio and other programs.

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Dear To Her Credit,
My question to you concerns trashing your credit and then the filing bankruptcy and getting away with everything.

I know the bankruptcy courts and creditors look for things like this, so you have to go about doing it a certain way, but in my eyes I think I could get away with it. I would like your opinion on this as well. Let's overlook certain character traits such as ethics and morals and responsibility, and let me ask you if you wanted to go out and trash all of your credit cards over a long span -- say, a year-and-a-half to two years -- knowing very well your intention of doing it is to file bankruptcy, do you think you still could get away with it?

The general rule of thumb is anything charged 90 days before bankruptcy is looked upon as being fraud so I'm thinking I could stretch that out four to five times longer and continue making minimum payments during that time (using the cash advances from the cards, of course).

I've got around $275,000 in purchasing power on all of my credit cards combined. I don't need credit anymore at my age, so I figure I might as well go out in style and make one good hit at the end of my life span and enjoy life to the max. I think I could sleep well at night and have a clean conscience because I see what the big banks do to the little people so I have no compassion for the banks themselves to do the same thing to them.

Could I get away with this? -- Tara


Dear Tara,
Assuming you are serious, of which I am not quite sure, you might as well be asking me how to rob the local bank in broad daylight. Not only have I not spent any time contemplating how to do such a thing, but I wouldn't tell you if I had. And really, how is spending money purposefully and fraudulently, with no intention of paying it back, any different from holding up the bank at gunpoint -- minus the gun?

You can't really believe that the misbehavior of some banks or individuals at some banks entitles you to steal from banks in general. Our banking system would fail if we all did that, and many "little people" who depend on these institutions would be hurt in the process. The banking system only works when most people make promises they can keep and do what they say they will do, which is pay back money they borrow or spend.

Some people have tried the tactics you are suggesting, although most of them didn't spend $275,000. One of my friends told me that her sister went out and ran up all her credit cards right before she filed for bankruptcy. She bought a closet full of new clothes and pretty much anything else she could think of, and promptly got a "fresh start" by filing for Chapter 7.

Just because someone gets away with it doesn't make it a good idea, however. She ran the risk of having her bankruptcy filing disapproved. Creditors look over recent spending carefully, looking especially for things that could be considered luxury goods. And she learned nothing about budgeting or living within her means for the long term. This happened some years ago; my guess is that her finances didn't take long to return to their pre-bankruptcy state.

I question the assumption that you no longer need credit. True, you may not be applying for a mortgage or car loan again. However, you could still need credit when you least expect it. Even assisted care facilities, should you ever need them, require proof of ability to pay and may ask for a credit check. There's no time in your life when you can safely say you no longer need a credit score.

You are correct that spreading the purchases out over a year or two would minimize the chances of the banks catching on and you having your planned bankruptcy filing denied. However, premeditated default remains, no matter how long term your plan is. I don't think your conscience would be as easy with such a plan as you claim. You seem like a smart person. Instead of thinking of yourself as being at the end of your life span and going out with a big bankruptcy bang, I recommend you use your talents and energy to improve your life and the lives of those around you instead.

See related: 8 myths surrounding bankruptcy, Be cautious with new credit when considering bankruptcy, Looking for credit after Chapter 7 bankruptcy  

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Updated: 02-21-2019