In recent years, some credit card companies have urged people to pay their taxes with a credit card. Don’t be tricked into thinking that credit card companies are sympathetic and acting on your behalf; this tactic is used to protect their own backs in the event that you have to file for bankruptcy. This is because when you pay taxes with your credit card, that particular credit card debt (the amount you paid off taxes with) is non-dischargeable if the credit card holder files bankruptcy. Meaning the credit card holder may not have to pay off the other credit card debt if he/she files bankruptcy, but as far as the taxes paid via credit card, the card holder is still responsible for paying that off. Congress even expanded this protection of credit card companies to include state and local taxes that are paid with credit card as well.

In Florida, property taxes are paid at the end of the year and federal income taxes for the previous year are due on April 15th. In this 4 to 6 month time frame, people are hit hard with property and income taxes, and it can be difficult to pay back the full amount with savings – so credit cards seem like a great option. But with credit card companies protected, if you are behind on your savings and use a credit card to pay your state or local taxes, then that debt may be non-dischargeable if you file for bankruptcy protection.

Many questions arise with this legislation. If someone were to take a cash advance on a credit card, and then pay their taxes with cash, would that debt be non-dischargeable? If you pay your state taxes on a credit card and then continue making payments without acquiring new debt, what part is non-dischargeable? The questions can continue, but the ultimate lesson is this: If credit card companies offer a convenient and helpful hand to their costumers, I recommend taking a second look before thinking it is too good to be true. In the case with taxes and credit cards, you may find yourself with extra debt if you are to file for bankruptcy at some point in the future.

Bottom line: It is probably not a wise idea to pay your property or income taxes with credit card. And if you think you might have to file bankruptcy, know what debt is and what debt is not dischargeable when you file.

Fortunately, if you file for bankruptcy and have these questions or issues, you talk to an experienced bankruptcy attorney at Clark and Washington. The bankruptcy court can settle disputes between all debtors and creditors, even if the creditor is the IRS.