It is a bad habit that many people get into easily; using one source of credit to pay another debt. We may transfer balances or pay off one line of debt using another with a lower interest rate. While these actions may not be inherently problematic, they can complicate things when a person files for bankruptcy. This is especially true of cases in which a person pays a non-dischargeable debt with a credit card, such as tax debts or student loan debts. Since neither of these debts is typically allowed to be discharged in bankruptcy, using a credit card to pay them and then filing for bankruptcy could be a cause for concern.
Dealing With Debts
Although credit card debt is the most common type of discharged debt in bankruptcy, many people assume there is no problem in having all debts applied to the card discharged in bankruptcy. While the IRS encourages for taxes to be paid with a credit card for ease, this doesn’t mean you will be resolved of tax debts paid via credit card in bankruptcy.
One problem is that the bankruptcy court may view any attempt to pay for non-dischargeable debts using a credit card prior to filing as fraudulent. There are rules as the type and limit of debts that can be accumulated on a credit card prior to filing. Violating these rules could be considered bankruptcy fraud and result in serious consequences. Further, new bankruptcy laws prohibit tax debts from becoming dischargeable over time as they had in the past. Personal tax liabilities are the responsibility of the taxpayer and only the IRS can offer repayment assistance.