Student loan debt is extremely hard to stay on top of due to high interest and even higher principles, but paying off student loan debt with a credit card is often a bad idea. More often than not, if you pay off a student debt with a credit card prior to filing Chapter 7 bankruptcy, that debt will not be discharged.
Credit card debt is an unsecured debt, which means that it is generally counted as a dischargeable debt when you file for Chapter 7 bankruptcy. However, there are some cases when credit card debt will be deemed nondischargeable, for example:
- If you commit bankruptcy fraud
- You paid secured debt off with unsecured debt
- Cash advances
Student Loans Are Usually Not Dischargeable
Student loans cannot be discharged by Chapter 7 bankruptcy unless you can prove extreme hardship, which is very hard to do. This makes it tempting for people to incur otherwise dischargeable debt, such as unsecured debt from a credit card, to pay off the nondischargeable debt.
Paying nondischargeable debts with a credit card could constitute bankruptcy fraud, a very serious violation that could see your bankruptcy thrown out altogether. Even if the credit card company can’t prove that you committed fraud, they will likely sue for nondischargeability, which can only be prevented by proving the student debt was dischargeable.
Getting Cash Advances Before Filing Bankruptcy
If you plan on filing bankruptcy in the foreseeable future, be careful about taking out cash advances. If you take out cash from a credit card prior to filing Chapter 7, you will probably have to pay the debt back after your discharge.
In some more severe cases, you may be charged with bankruptcy fraud. For example, if you get a cash advance and use it to squirrel away some extra cash or buy luxury items, you could face serious consequences.
What to Do If You Have Secured Debt
If you have student loan debt or income tax debt, both of which are generally nondischargeable in bankruptcy, talk to a bankruptcy attorney about possible solutions. There may be other options available to you. Whatever you do, avoid committing bankruptcy fraud, because it will undoubtedly make your situation much worse.