There is something about bankruptcy that brings out the malefactor in people. I am not exaggerating when I say that, despite their financial difficulties, 99% of my clients wouldn't pause for a moment before returning a dropped wallet. These are good people. However there is something about bankruptcy as, in my experience, 9 out of 10 bankruptcydebtors will propose a far-fetched scheme they have dreamt up in an attempt to "defraud" their bankruptcy estate. Yes, I just used the infamous 90′s air quotes. For good reason, too. See, I strongly believe that the vast majority of debtors have no ill-intent when they dream up these grand schemes. In fact, many are flustered when I point out that they are suggesting criminal activity. This is why I am here to say that, as an Arizona bankruptcy debtor, you chapter 7 or chapter 13 petition is bound by the bankruptcy code. Any attempt to defraud your creditors through vulgar manipulatio of this code is serious business. Criminal business, to be precise. At the very least, you are putting your discharge at risk. One plan that seems particularly popular among debtors is attempting to pay down secured debt with unsecured funding sources, that can the be eliminated according to the bankruptcy code. It is readilyunderstood that there are certain debts that cannot be discharged in bankruptcy. Child support? Certain tax debts? Student loans? There is a very good chance that these debts will survive through dischage, and thus you will be responsible for them after filing. Is it then possible to may these debts using a credit card (or other unsecured funding source) prior to filing? Unfortunately you are probably pushing your luck, as the bankruptcy court is pretty sharp when it comes to these situation. As an example, below you will find a discussion of paying down tax debt with unsecured funds: Defendant's argument in response to nondischargeability is that the debt is now an unsecured debt owed to American Express. However, Section 523(a)(14) directly counters this argument. In MBNA America v. Chrusz, funds from a credit card check made to "Cash Deposit" were used to pay nondischargeable taxes. The Chrusz Court found that the funds traceable to payment of nondischargeable Section 523(a)(1) debt were nondischargeable under Section 523(a)(14)." Gavin, 248 B.R. 464, 465 (internal citations omitted); See also Arthur B. Federman, The Bankruptcy Reform Act of 1994, 51 J. Mo. B. 105, 106 (1995) (debtors cannot borrow funds with credit card to pay taxes that would be nondischargeable). What is the moral of this story? Well, I have two. Whatever hair brained scheme you dream up to prevent the inclusion of assets in your bankruptcy estate or to eliminate otherwise non-dischargeable debt, your bankruptcy trustee has likely seen it before. However, while many of these ideas are certainly illegal, others are utililized every day by experienced bankruptcy lawyers. That is, there are many completely tricks and tools available to debtors that can contribute to a more favorable discharge. This is why I always recommend speaking with a qualified bankruptcy lawyer.
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