You might think it’s a bit cruel that a person declaring bankruptcy has to pay a court filing fee, an attorney’s fee, and maybe even other fees to file the case. After all, you wouldn’t be thinking about filing for bankruptcy unless you were having some pretty serious financial issues already, right?
It’s true that many people will wait until they are pulling change from under the couch cushions 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.
Using a Credit Card to Pay Bankruptcy Fees Can Be a Bankruptcy Crime
“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, please rethink. What you’re talking about is committing fraud. When you charge on your credit card with no intention of paying it back, you’ve committed fraud against your creditor. You can be prosecuted, fined, and serve jail time.
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.
When Cash Advances for Bankruptcy Fees Are Fraudulent
“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 $725 within 90 days before filing bankruptcy are presumed to be fraudulent. Likewise, cash advances that total more than $1000 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.
What Happens to Fraudulent Charges in a Bankruptcy Case?
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, or that they were not for luxury goods or services.
If you charged up a lot of debt right before filing bankruptcy, the trustee or one of your creditors could potentially ask the court to deny your general discharge and leave you owing all your debts because of your fraudulent behavior before the case was filed.
Where to Find the Money to File If You Can't Use a Credit Card
There are much better ways to find the money the file a bankruptcy case, such as payment plans, waivers, etc. Using a credit card will only add to your problems.