The Danger of Incurring New Debt Before Filing

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When considering bankruptcy, it’s crucial to understand the risks of incurring new debt before filing. Many individuals mistakenly believe that taking on additional obligations will not affect their case, but it can lead to severe legal complications. Consulting with a bankruptcy attorney near you can help you navigate these challenges and ensure a smoother filing process.

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Learn why incurring new debt before filing for bankruptcy can jeopardize your case and lead to serious legal consequences. Discover how an experienced bankruptcy attorney near you can help you navigate these risks and protect your financial future.

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Flat vector illustration of a person surrounded by credit card charges and payday loans with a warning sign labeled 'New Debt Before Bankruptcy', while a bankruptcy attorney near them holds a caution checklist, symbolizing the legal risks of incurring new debt before filing.

Bankruptcy Law

The Danger of Incurring New Debt Before Filing

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Common Bankruptcy Pitfalls & How to Avoid Them

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Mar 30, 2025 06:22 PM

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The Danger of Incurring New Debt Before Filing

Filing for bankruptcy can provide a powerful fresh start—but your actions just before filing can make or break your case. One of the most common (and costly) mistakes is incurring new debt right before declaring bankruptcy. It might seem harmless—or even strategic—but it could actually delay your discharge, lead to lawsuits, or result in some debts being excluded from relief altogether.

In this post, we’ll break down why new debt before bankruptcy is so risky, how courts treat these situations, and how a bankruptcy attorney near you can help you avoid costly missteps.

💡 For every post in this series, scroll down to “Related Posts.”

Why New Debt Before Filing Is a Red Flag

The bankruptcy process is designed to help honest debtors get relief—not to bail out strategic borrowers looking to game the system. When you take on new debt close to your filing date, it sends up red flags for the trustee and creditors.

Common Examples of Risky Behavior:

Maxing out credit cards before filing

Taking out a personal loan knowing you’ll file soon

Using balance transfers or payday loans just before declaring bankruptcy

Financing big-ticket items (TVs, furniture, electronics, etc.)

These actions can be seen as fraudulent intent, especially if you had no intention to repay the debt when incurred.

How Creditors Respond

Creditors can file an adversary proceeding—a lawsuit within your bankruptcy case—claiming that the new debt should be non-dischargeable due to fraud. If they win:

You’ll still owe that debt after bankruptcy

You may face legal fees and damage to your case credibility

Key Rules and Legal Standards

Presumption of fraud (Section 523 of the Bankruptcy Code):

Any luxury goods or services totaling $800 or more within 90 days of filing are presumed non-dischargeable.
Cash advances over $1,100 within 70 days also raise a presumption of fraud.

These thresholds change periodically, but the principle remains—recent, unnecessary debt before filing is dangerous.

Exceptions to the Rule

Some expenses are seen as legitimate:

Emergency medical bills

Necessary household repairs

Job-related travel or tools

However, even these may be scrutinized if timing suggests bad faith.

What If You Already Took on New Debt?

Don’t panic—but don’t try to hide it either. A bankruptcy lawyer near you can help you:

Explain the debt in your filings

Defend against creditor challenges

Delay filing to allow time between the charge and your case

Explore Chapter 13 options where this risk is less severe

How to Protect Yourself Before Filing

Avoid large purchases or cash advances for at least 3–6 months before filing

Don’t transfer balances or consolidate debt unless advised by your attorney

Be honest in your disclosures—omissions can tank your case

ReferU.AI Helps You File the Right Way

ReferU.AI connects you with a bankruptcy attorney near you who knows how to steer your case clear of trouble. Our AI-powered platform matches you with legal experts who protect your interests and help you file with confidence.

Final Thought: Bankruptcy Relief Isn’t a Free-for-All

A fresh start comes with responsibilities. Taking on new debt before filing may seem like a shortcut—but it could cost you more than you think. With the right advice, you can avoid unnecessary risk and secure the clean slate you truly deserve.

The Danger of Incurring New Debt Before Filing