Discharge Of Fraud Judgment With Credit Cards

A prospective client consulted with me for "pre-bankruptcy planning." The client had a judgment for over $100,000 from a civil suit where the prospective debtor was found liable for civil fraud. Debts from fraud are not dischargeable in bankruptcy. This debtor had a plan. He said he would get cash advances from different credit cards of about $10,000 per month for ten months being careful not to borrow more than $10,000 per card. He would then pay off the fraud judgment, file Chapter 7 bankruptcy and attempt to discharge the credit cards. He understood that one or more credit cards may object to the amount of charges within a year of bankruptcy, but he figured not all creditors would object. If a credit card company did object he said he was earning enough money to settle for an amount less than the face amount of the debt. In other words, his plan would effectively discharge a debt that he was not allowed to discharge.

This plan is substantially the same idea that I heard from another prospective filer last week who paid his taxes with credit cards and planned to file bankruptcy after making minimum payments for a year or more. These people know, and accept the risk, that one or more creditors may get wise to the scheme and demand payment, but they don’t care. They know that the alternative is liability for the entire fraud debt or tax debt. In realty, these people are more likely than not to get away with it in full or in part. If this practice is more common than I realize, or becomes common, the bankruptcy trustees could include in their standard questions at creditor meetings questions about the debtor’s use of credit cards to pay taxes or civil judgments. It may be unethical (and it is so,  in my opinion) for an attorney to give this type of advice to a prospective bankruptcy debtor. Those people with a duty to creditors also should be more alert to using credit cards to improperly discharge debts in bankruptcy.

posted by Jonathan Alper, bankruptcy and asset protection attorney, Orlando, Florida