Can I Use My Credit Card to Pay My Bankruptcy Fees?

Using a credit card to pay your bankruptcy fees may cause you much grief. Getty Images

You might think it’s a bit ironic that you have to pay a court filing fee, an attorney’s fee and maybe even other fees to file a bankruptcy case. After all, you wouldn’t be thinking about filing a bankruptcy unless you were having some pretty serious financial issues already, right?

It’s true that many people will wait until they have reached their last dime before they consider investing* in a bankruptcy case.

Waiting until you have no resources to fund the filing of a bankruptcy case can cause even more stress and make the decision to file even more difficult.

*Are you surprised that I used the word “investing”? If you’d like to know more about how bankruptcy can be an investment in your future, read our article on the subject: Bankruptcy: An Investment In Your Future.

“But wait,” you might think, “I have some room on a credit card. Maybe I can use that account to pay my fees. After all, I’m going to discharge the account in the bankruptcy anyway. That way, the court and the attorney will get paid, but it won’t have to come out of my pocket.”

Does this sound like a brilliant idea to you? If so, I urge you to rethink. What you’re talking about is committing fraud. Yes. I said it. When you charge on your credit card with no intention of paying it back, you’ve committed fraud against your creditor.

Most bankruptcy attorneys will not take a credit card to pay for fees unless that card is in the name of a party who isn’t filing a bankruptcy case. If your parent, friend, or cousin paid the fees for you, your bankruptcy attorney may well be happy to run it as a charge on that person’s account.

“What if I take out a cash advance?

How will the credit card company even know that I was using the cash to pay for a bankruptcy?” Good question. The creditor doesn’t necessarily have to know that’s what you’re using the money for.

There’s a provision in the bankruptcy law that deals with cash advances or charges for luxury purchases right before bankruptcy. The Bankruptcy Code at 11 U.S.C. § 523 states that luxury purchases that total $650 within 90 days before filing bankruptcy are presumed to be fraudulent. Likewise, cash advances that total more than $925 within 70 days of filing a bankruptcy case are also presumed to be fraudulent.

What are luxury purchases? The bankruptcy code doesn’t exactly tell us what they are. Instead, the code tells us that they are not: “goods or services reasonably necessary for the support or maintenance of the debtor or a dependent of the debtor” are not considered “luxury goods or services.”

Besides the money needed to pay a bankruptcy lawyer and court fees, luxury purchases might include new furniture, vacation expenses, jewelry, new computers or appliances that were not replacing broken ones, a new car, or other items not necessary for your well being.

You can get more examples of what is and what isn't a luxury purchase at Discharging Debts: Debts that May be Discharged.

So, how does that affect you if you file a bankruptcy case? Just because the charges are presumed fraudulent does not mean that you will lose your discharge or that those debts will not be discharged. For that to happen, the creditor would have to file a lawsuit within the bankruptcy case -- called an adversary proceeding -- asking the court to declare the charges “not discharged.” In that lawsuit, though, the creditor would not have to prove that those charges were fraudulent. Rather, you would have to prove that they were not fraudulent.

Furthermore, the creditor could potentially ask the court to deny you a discharge altogether because of your fraudulent behavior before the case was filed.

There are much better ways to find the money the file a bankruptcy case. Here are some ideas you might consider:

Too Broke to File Bankruptcy?

Too Broke to File Bankruptcy? Part 2