Issues with cc purchases before filing?

[julsmom]

We pretty much have been living on our cards in the past; gas, food, groceries, entertainment, Christmas, etc. So...my question is are we going to get in trouble with any of these purchases when we file? Any red flags? I have been trying to be real careful since I know we are going to be retaining & starting soon, looks like we will be a Ch 13 plan...but for example, DH was looking at getting a new grill; basically the parts to get the other one up & running costs almost as much as the new one; but to me would that be something frowned upon? We haven't done much that I would be concerned with but I wasn't sure on that one. I just said, I have no idea....I don't know...so are there anything to be looking out for? And how long before filing should I be worried about? We went to the store & did a stock up groc trip; meats, diapers, etc for the family & it was almost $480!!! Holy cow!

[AngelinaCatHub]

OK, blunt as I can be at times. IF YOU CANNOT LIVE NOW, WITHOUT THOSE CARDS, YOU WILL FAIL IN BK!!!!!!

Stop using them NOW and altogether. You are purchasing needed and exempt stuff. It does not mean exempt as in it's OK to cheat the creditor on purpose. Pay them as long as you can. Stop for AT LEAST 90 days. Pay all of them equally as in the minimums.

Your husband is not that soft that he cannot make himself a grill. What has happened to the good ol' Boy Scout Handbook? He does NOT need a new grill.

Best start now using cash only as when you file for 7 or 13, your cards will surely be cut off. 'Hub

[systemslt]

We pretty much have been living on our cards in the past; gas, food, groceries, entertainment, Christmas, etc. So...my question is are we going to get in trouble with any of these purchases when we file? Any red flags? I have been trying to be real careful since I know we are going to be retaining & starting soon, looks like we will be a Ch 13 plan...but for example, DH was looking at getting a new grill; basically the parts to get the other one up & running costs almost as much as the new one; but to me would that be something frowned upon? We haven't done much that I would be concerned with but I wasn't sure on that one. I just said, I have no idea....I don't know...so are there anything to be looking out for? And how long before filing should I be worried about? We went to the store & did a stock up groc trip; meats, diapers, etc for the family & it was almost $480!!! Holy cow!

if you know that you will file not if but when. i would stop paying the cards now save money for lawyer. if you intend to max out the cards before stopping payments you need to find what is and is not considered abuse. vacations, jewelry, cash advances. 6 months before filing will not impress the trustee.

[forgotten]

I have been trying to be real careful since I know we are going to be retaining & starting soon

Based on that sentence, any charges you are making on your credit cards is fraud. You are borrowing money with no intention of repayment.
Why are you risking it and trying to figure out what you can get away with?

Step 1) Stop using all credit cards
Step 2) Make the at least 3 minimum monthly payments on any credit cards you have used for luxury purchases (to lower chance of objection), and stop paying all together on the rest of them.
Step 3) File when you are ready.

It is a big change going from the, I want it, i'll get it mindset to the, do I really need it one. You need to develop a budget with the income you have and stick to it now, you are going to need those skills once you enter the CH13.

Most of all... good luck!

[frogger]

OK, blunt as I can be at times. IF YOU CANNOT LIVE NOW, WITHOUT THOSE CARDS, YOU WILL FAIL IN BK!!!!!!

Well said 'hub.

[julsmom]

Thanks

I wanted to say thanks for the feedback, I do appreciate all the help & advice here. I do understand what you are saying & yes it is that fine line,when I am stuck in the cycle of having to make the payments, then not having money/cash to pay for groceries & put gas in the gar, which then goes on the cards; what a vicious cycle. I have been careful to not be using them for anything that I don't feel justified in, but i do feel rather stuck...in order to pay cash for the gas/groc, expenses, I then have to stop the payments on the cards, so i can just never seem to get ahead, a lot of why I am in this position to begin with!

[forgotten]

I wanted to say thanks for the feedback, I do appreciate all the help & advice here. I do understand what you are saying & yes it is that fine line,when I am stuck in the cycle of having to make the payments, then not having money/cash to pay for groceries & put gas in the gar, which then goes on the cards; what a vicious cycle. I have been careful to not be using them for anything that I don't feel justified in, but i do feel rather stuck...in order to pay cash for the gas/groc, expenses, I then have to stop the payments on the cards, so i can just never seem to get ahead, a lot of why I am in this position to begin with!

If you have only been using the cards for gas, groceries and neccesities then just stop paying the cards now (and stop using them).

Edit: and no, don't buy a new grill on credit.

[rcoveles]

I have stopped using all cards. I canceled all auto-pays, and am waiting on a debit card to move one more over. If that one hits, I may just make a minimum payment on that card. I'm also planning to cancel all cards as soon as everything is clear. (wish I could cancel the payments along with them!)

This thread brings to mind 2 things my lawyer told me last week.

1. When I told him my CC balance (180k) - he asked me how it got that big, and said they would probably ask at my hearing. It really was 99.9% business. I might have charged some gas or something minor here or there, but I would usually run that through owner's equity when accounting for it. I've never heard of anyone having to explain their balances, but he said I might have to..what about people whose charges are all personal? Do they have to "explain" and are charges ever disallowed, aside from obvious fraud (i.e. big transactions right before filing)?

2. The ever-optimistic part of me is still trying to figure out a way to pay this off without filing 13. To this end, I am thinking about trying to work out lower payments, making minimums on all cards for a month or two while I get my ducks in a row. If at that point a few months down the road, I surrender..will those payments become an issue? When I mentioned this to him, I said these transactions might be viewed as preferential payments to some creditors if I didn't pay everyone for the same amount of months, he told me it would only be for transactions (in the aggregate to one creditor) OVER $600. So if I do make any payments, to some and not others, they need to be under $600. Anyone ever hear of this?

[flyinbroke]

From my understanding, preferentials are over 600. The atty papers I have ask who is current and who is not, but the specifics involve 600+ payments beyond any minimum standard payment.

Any experienced folk care to elaborate?

[forgotten]

1. When I told him my CC balance (180k) - he asked me how it got that big, and said they would probably ask at my hearing. It really was 99.9% business. I might have charged some gas or something minor here or there, but I would usually run that through owner's equity when accounting for it. I've never heard of anyone having to explain their balances, but he said I might have to..what about people whose charges are all personal? Do they have to "explain" and are charges ever disallowed, aside from obvious fraud (i.e. big transactions right before filing)?

2. The ever-optimistic part of me is still trying to figure out a way to pay this off without filing 13. To this end, I am thinking about trying to work out lower payments, making minimums on all cards for a month or two while I get my ducks in a row. If at that point a few months down the road, I surrender..will those payments become an issue? When I mentioned this to him, I said these transactions might be viewed as preferential payments to some creditors if I didn't pay everyone for the same amount of months, he told me it would only be for transactions (in the aggregate to one creditor) OVER $600. So if I do make any payments, to some and not others, they need to be under $600. Anyone ever hear of this?

If 99.9% of your debt was business, why aren't you filing a Chapter 7? You are exempt from the means test if over half your debt is non-consumer(business) debt. Do you have non-exempt items you are trying to protect?

That being said... My unsecured debt was $320k... no one asked a thing about how it got that high.

Preferential payments to creditors don't really mean anything to you... You will need to list them and the trustee may seek the return of that money from them, but it is no skin off your back.

Honestly however, at this point, you are probably just throwing your money away by sending in any payments. Do you really think you can dig yourself out with that high of a balance? Your minmum payments are barely paying the interest.

[rcoveles]

If 99.9% of your debt was business, why aren't you filing a Chapter 7? You are exempt from the means test if over half your debt is non-consumer(business) debt. Do you have non-exempt items you are trying to protect?

That being said... My unsecured debt was $320k... no one asked a thing about how it got that high.

Preferential payments to creditors don't really mean anything to you... You will need to list them and the trustee may seek the return of that money from them, but it is no skin off your back.

Honestly however, at this point, you are probably just throwing your money away by sending in any payments. Do you really think you can dig yourself out with that high of a balance? Your minmum payments are barely paying the interest.

I know..there's a lot in play though. I have one loan that will be paid a year from now, which is $1000 a month. I have 2 Chase cards that have HUGE minimums on them, like $600 each a month. I was going to call them, and see if there is ANY way we can do maybe interest only for the year, so I can pay that loan off, then pick back up with them a year from now. My other stuff, I'm thinking I can pay a few of the smaller ones off selling some personal effects, etc. I also have a second loan, which will be done in 3 years, so that's another $525 to the pot. Whatever happens, I'll be canceling all of them, so no further charges can be made.

The whole reason for NOT doing 7, is the fact that I want to keep my business up and running, because it is how I earn a living. Would love to try to get payments more affordable (because they're NOT right now). Do I have non-exempt items? Yes. Some guitars and musical equipment, which I earn part of my living with. I'd be using my state's exemptions (for purposes of my house), and all they allow for "tools of the trade" is a sewing machine!! (apparently, our laws haven't been updated since 1941).

I may wind up paying more back (definitely) in the long run, but knowing these two big items will be coming off over the next 3 years has me thinking.

Would it be easier to file 13? Probably, but there are personal concerns as well.

A friend is going through a 13 right now, and she said the local trustee is new, and a REAL jerk. He flagged her husband's retirement contribution at work, and demanded that be included in the plan. My wife and I save a lot for retirement - she has a Simple with employer match at work, I have a SEP I set up with my business, and we both have Roths. We probably contribute over a grand a month to those, and have been doing it for years and years. If they disallow that - particularly my wife's - I'll be beside myself. Not to mention, I'm self-employed, and just take a draw, don't do payroll taxes or anything (just self-employment tax), so my Social Security will be next to nothing. I need a healthy retirement savings, and five years will put a SERIOUS dent in that.

I'm an entrepreneur, and I'm always looking (and sometimes finding) new ways to make a buck. I just keep thinking that I'm giving up too easily. Maybe there is a way. They say where there is a will, there IS a way. I have a few ventures that are just getting off the ground. I haven't given them a fair chance. Maybe I should. I have to at least try. If I try, and still can't make a go of it..I won't have a choice in the matter. At least I'll be able to say I tried my best.

[rcoveles]

If 99.9% of your debt was business, why aren't you filing a Chapter 7? You are exempt from the means test if over half your debt is non-consumer(business) debt. Do you have non-exempt items you are trying to protect?

This actually got me to thinking today. Even though all of my debt is business related - couldn't I still be forced into 13 if they determine we have adequate disposable income? The more I thought about it, I probably wouldn't mind being done with this already and making a clean break, but from what I read, I'd still have to file the schedules (I&J I think?), and they could throw my 7 out. Considering we are saving around a thousand bucks a month in various retirement accounts, I could see being forced into a 13 anyway, unless I'm misunderstanding things.

[forgotten]

This actually got me to thinking today. Even though all of my debt is business related - couldn't I still be forced into 13 if they determine we have adequate disposable income? The more I thought about it, I probably wouldn't mind being done with this already and making a clean break, but from what I read, I'd still have to file the schedules (I&J I think?), and they could throw my 7 out. Considering we are saving around a thousand bucks a month in various retirement accounts, I could see being forced into a 13 anyway, unless I'm misunderstanding things.

No. If you qualify as more than 50% non-consumer debt your disposable income no longer matters. You could make 40 million dollars a week.
When they wrote the new laws they didn't want people afraid to try new businesses, since that is what make the economy go around.

My attorney was going put me in chapter 7 with the means test showing $2000/mo disposable income. I had some special circumstances and ended up going with a 13 anyway to lower the chance of Adversary Proceedings.

[kornellred]

I think that a fairly high percentage of debtors are filing for bankruptcy based solely upon their unsecured credit card debt - moreso these past few years than in the distant past.

I think that a fairly high percentage of these debtors took on the debt voluntarily, knowing full well that their financial situations would not change enough for them to ever be able to pay the debt off.

Furthermore - most of these debtors KNEW that they would eventually file for bankruptcy long, long before they stopped using their credit lines. Of course, the denials, excuses, rationalizations, cunning plans, and asset reallocations served to obscure the fact that they were lying to themselves, but so what? Everyone else is doing the same thing.

Do not think for a second that creditors and lawmakers are not or have not been aware of these facts. Their dilemma is that fraud must be proven in a court of law - and there is no way they can actually pinpoint when, exactly, a debtor consciously began to abuse the credit system. Unless, of course, the debtor leaves a trail of evidence which reveals their motives.

In order to make this conundrum a non-issue, debtors are directed to desist from using credit for a period of time long enough so that creditors will have taken enough steps on their own to seek redress of the situation. If you stop making payments, your credit line will be canceled, and you will not be able to make any purchases on credit. All lines of credit will fall like dominoes. Then, you do nothing, even if you can. Eventually, your balances due will be outrageously high because of late fees and compound interest, and some creditors will start proceedings to obtain a judgment.

Bankruptcy follows, and the real reason how all this mess came to be is now without any relevance at all.

It's a game. Play by the rules and you will get by. Try to circumvent the rules and the consequences can be unpleasant.

[UNDERMICH]

STEP 4

Change your exemptions so you do not a get big return when tax time rolls around. The odds are when in BK13 the trustee will tax it. You can change them during the 3 or 5 year term.