Shocking Truth: The Ethical Dilemma of Racking Up Credit Card Debt Before Bankruptcy


Whatever is going on in today’s financial world, many individuals face the pressure and reality of bankruptcy. The decision to declare bankruptcy is never easy, and it often comes with more questions than answers. One particularly contentious issue is the act of racking up credit card debt just before filing for bankruptcy. This practice, while could be considered legitimate and/or legal in certain circumstances, raises significant red flags for your case and ethical concerns that could require a closer look at all of your finances for an extended period of time.

Understanding Bankruptcy and Its Purpose

Bankruptcy is a legal process designed to help the poor, but unfortunate debtor. Bankruptcy offers individuals a fresh start from their overwhelming debt. It provides a legal process to have certain debts forgiven. This then allows debtors to reset their financial lives and get that fresh start. However, the system relies on honesty and good faith. Debtors are expected to be honest about their financial situation and not exploit the system by racking up credit card debt.

The Temptation: Racking up Credit Card Debt

When faced with bankruptcy, some individuals might consider maxing out their credit cards to buy things, get services, or even for cash, as they know that these debts could be forgiven through the bankruptcy process. The temptation to rack up credit card debt may stem from a desperate desire to make the most out of a bad situation. This approach, however, raises ethical questions about fairness, responsibility, and the integrity of the bankruptcy process.

Ethical Considerations

  1. Fairness to Creditors. Credit card companies and other creditors extend credit based on trust and the expectation and likelihood of repayment. Racking up credit card debt with no intention of repaying undermines this trust. This action can be seen as taking advantage of the system, which is ultimately unfair to creditors who suffer financial losses as a result. While I may not have a lot of sympathy for creditors who charge almost illegal interest rates and ridiculous fees, it is important that the judicial system maintain a fair playing field for everyone.
  2. Responsibility and Intent. Ethical behavior for your finances includes taking responsibility for your actions. Deliberately racking up debt before bankruptcy can be seen as an irresponsible act that shifts the burden of financial mismanagement onto others. The intent behind such actions is crucial. If racking up credit card debt is premeditated with bankruptcy in mind, it crosses an ethical line – this could be bankruptcy fraud. Opening the can of bankruptcy fraud worms can require you to sit for a deposition, attend hearings to explain your spending, and provide documentation of how monies were spent. No one wants that kind of investigation into their financial lives.
  3. Bankruptcy Fraud. Bankruptcy fraud is a real thing and the United States Trustees are authorized to investigate and prosecute bankruptcy fraud. In addition to denying a debtor in bankruptcy their discharge, bankruptcy fraud can have financial penalties of up to $250,000, and include prison time of up to twenty (20) years, or all of the above. To understand more of what bankruptcy fraud looks like, click HERE. To understand what “actual fraud” is, click HERE for the article I wrote for the Tampa Bay Bankruptcy Bar Association.
  4. Impact on the Bankruptcy System. How does the saying go, “One bad apple….”? The bankruptcy system is designed to help those in genuine need. Abusing this system by racking up credit card debt can lead to stricter regulations and more scrutiny for all filers, potentially making it harder for those who genuinely need relief to access it. In 2005, the bankruptcy court underwent a major overhaul of their rules and procedures. This 2005 change did bring in some protections against debtors who were playing fast and loose with the last set of rules. The only way to ensure a fair game is to ensure a fair playing field.

Other Legal Implications

While the focus in this article is on ethics, it is important to note that there are other legal implications as well. Courts and trustees can scrutinize your recent financial activity within ninety (90) days of filing for bankruptcy. If you are racking up credit card debt in bad faith or with fraudulent intent, the trustees can review your financial activity up to two (2) full years before you filed for bankruptcy. If there is evidence of bad faith or fraudulent intent, that debt may be excluded from discharge or you may not receive a discharge at all (for any of your debts!). This would defeat the purpose of filing bankruptcy in the first place.


The decision to declare bankruptcy is a significant one, and not one that anyone should make lightly. There will be emotional and ethical complexities. While the bankruptcy courts provide a pathway for financial relief, it is essential to approach it with honesty. Racking up credit card debt with the intention of discharging it through bankruptcy undermines the fairness of the system. It also raises serious ethical questions of the individual filing for bankruptcy. By considering the bigger picture of our financial decisions, we can navigate these challenging situations with both legal and ethical integrity.

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