How far back does the trustee look when first filing?

[JLM0706]

I am finally getting my paperwork together to file, but have a 401K loan I took out for some house expenses and for a final vacation before the work begins (dumb I know). How far back will they look as far as my checking account goes? Should I wait a few months to file so this looks less sketchy? The loan is for 10K.

[justbroke]

For a Chapter 13, I don't think the Trustees really care. At least that has been my experience. Since a Chapter 13 is a form of bankruptcy which requires that you pay your unsecured creditors what they would have in a hypothetical Chapter 7, there's no real need to look too far back. I don't even remember if I sent in any more than 90 days of bank statements. If there is any money remaining the Chapter 13 should account for that under the hypothetical Chapter 7 tests since you'd have to disclose cash on hand (and in banks). Whether or not you could exempt some or all of that money will come down to specific exemptions available to you in Kansas.

I do know that a vacation on the eve of filing a Chapter 7 bankruptcy screams that the debtor is not deserving of a discharge. That's probably because one is assumed to be insolvent 90 days before filing. Whether or not a Chapter 13 Trustee will care will likely come down to those same 90 days prior to filing. If the vacation was prepaid it may be easier to explain. Additionally I can see that your case is different since you did not borrow from "dischargeable" creditors.

A 401(k) loan is not dischargeable and is not technically a loan/creditor when it comes to bankruptcy. However, right or wrong, a Chapter 13 Trustee could ask why you obtained a 401(k) loan to go on vacation, on the eve of filing Chapter 13. That would mean that your payback of the vacation (Chapter 13 loan) is being funded from otherwise disposable income. But that is merely me thinking of every possible scenario.

Those are my thoughts on the topic. I don't think it's a big deal unless you did this a.) on the eve of filing bankruptcy (within 90 days), and/or b.) you used credit cards that you're trying to discharge and it's also on the eve of filing bankruptcy.

[Barbisi]

Well, of course our experience was very different. I think we had to produce all our bank statements for the previous year, and we even had to explain the one big check for a few thousand dollars of 2016, which was the mortgage down payment! And we also had to explain that 60k of our sale price proceeds in July 2016 had gone to pay off as many creditors as possible so we could qualify for a new mortgage! With us, it was a very lengthy process, maybe be cause we had purchased the house in Oct.2016 and filed in Feb.2017.
Ours will finally end in 2022 and we are expecting push back right to the end!
I'm sure yours will be a piece of cake, like 99% of others on these forums, good luck!

[sophieanne]

Hi..when we filed, we had to give 3 months of bank statements. I had taken a payday loan right before filing that ended up in the plan. Was never questioned about any of the credit card charges or what the payday loan went to. If you want to see if something is a concern, take advantage of a free attorney consultation.

[JLM0706]

Well, of course our experience was very different. I think we had to produce all our bank statements for the previous year, and we even had to explain the one big check for a few thousand dollars of 2016, which was the mortgage down payment! And we also had to explain that 60k of our sale price proceeds in July 2016 had gone to pay off as many creditors as possible so we could qualify for a new mortgage! With us, it was a very lengthy process, maybe be cause we had purchased the house in Oct.2016 and filed in Feb.2017.
Ours will finally end in 2022 and we are expecting push back right to the end!
I'm sure yours will be a piece of cake, like 99% of others on these forums, good luck!

WOW! A full YEAR?! At least you can now see the end of it within sight! Good luck!

[JLM0706]

I guess I'll see what the attorney says, we can always delay my filing until it looks less sketchy I suppose?

[justbroke]

Yes, delaying a filing to place to time between a questionable charge is always a good strategy. Whether a Trustee probes further than the original 90 days is fact specific. A Trustee could see something that piques their curiosity and they then probe deeper.