I’ve been conversing with a few people and talk of the “credit card nuclear option” seems to be coming up more and more these days.   What is the credit card nuclear option?   Well, if you’ll recall from this post, it is essentially taking cash advance(s) from your credit cards to the max or near max with no intention of ever paying back the money.    The goal after taking the cash advance money is to pay off outstanding debt on tangible but protected (non seizable) assets.

For example, let’s say you have 100k in credit lines and have 100k left on your mortgage, the goal would be to take the 100k cash advance then use the proceeds to pay off your mortgage and finally file for bankruptcy at some point in the future.    This plan only works in certain states however depending on the laws in your state.   In some states, I think your home can be seized or lien placed on it to recover the funds but in other states, a home can’t be touched.

This also works really well to get rid of student loans.   If you file for bankruptcy, student loans ARE NOT forgiven and you will still owe the amounts on this debt BUT if you take out a credit card cash advance, pay off your student loans, THEN file for bankruptcy there is no recourse.    The student loans are gone forever and the bankruptcy will be gone in 7 to 10 years or so.

I’ve spoken to a good friend who runs a small business and he’s heard from some of his small business customers that they are exactly planning on doing the credit card nuclear option if things get much worse.   Interestingly, he’s told me elaborate stories of how these “nuclear options” are meticulously constructed to ensure that the trails all go to dead ends (i.e. no possibility of recovery).    Obviously, I won’t post details on how to do that but it’s very interesting at the ingenuity of the “free market” system to come up with these scenarios.   Clearly, small business owners are taking their cue from their big business counterparts and gaming the system just like big corp.

I can’t blame anyone for taking this approach if their situation is dire.  Would you want to live in a tent city or homeless shelter or use the nuclear option to keep your home and simply file for bankruptcy?   If I were saddled with 30k or more of student debt, I would probably take this approach to get rid of my student loans if I were on my way to bankruptcy.