Countdown to the inevitable

[stevem3827]

Ok, as of today none of our accounts, whether secured or unsecured are late. However, my wife took another position at her company for a reduced salary to save her sanity. The reductions are to occur over a period of time, approximately 8 months in total, 3 step-downs. We have been able to make do with the first reduction, which occurred in April. However, the most recent one was a $4000 hit and there will be another $4000 reduction in about 2 months. Total reduction is $11,000 or about 16% gross.

During the past few months, any extra expenses went on credit cards so those monthly payments didn't go up much. However with the most recent and upcoming reduction, there is no way to continue this way when bringing in about $700 less per month. Eventually some things are not going to get paid and it will escalate from their.

There is a chance that her current position grade with be upgraded with a substantial increase, perhaps close to what she was making. This may or may not happen and if it does, there is no timetable. Assuming that we are headed for a Chapter 13 (we make too much for a Chapter 7), should we use some of our available credit now to stock up on necessities such as disposable items and also auto maintenance? We will still be current for at least another 30 days if nothing changes and could possibly avoid a 13 with a bump in her salary. It's still up in the air but we are not sure how to proceed today as if the increase doesn't come and we fall behind, should we have prepared ourselves? thanks in advance.

[LadyInTheRed]

Welcome to BKforum!

Charging purchases to a credit card with no intent to pay is fraud. It is against forum rules for anybody to to suggest you committ fraud or provide any information that would help you commit fraud. I realize that you probably don't want to do anything fraudulent. But, I want to be clear on this issue up front.

You need to decide wether to file BK based on your current circumstances, not based on an income increase that may or not happen in an undefined period of time. If you decide to file BK, then you should stop paying credit cards. In the meantime stop paying more than the minimum payments until you make a decision. Making payments on debt that will eventually get discharged is throwing money away.

One way to decide whether to file a Chap 13 is to determine whether you could pay off all of your dischargeable debt in five years without BK. If not, a Chap 13 might be a good option for you.

Your income alone does not determine whether your qualify for a Chap 7. You can be over median income and still pass the Chapter 7 means test. Have you consulted with any bankruptcy attorneys? Most provide free consultations. Some will run a means test at a consultation, others will not, but can give you a good idea of whether you would pass the means test.

There is a lot of good information here. Please keep reading and asking questions.

[brokehmowner]

You need to decide wether to file BK based on your current circumstances, not based on an income increase that may or not happen in an undefined period of time. If you decide to file BK, then you should stop paying credit cards. In the meantime stop paying more than the minimum payments until you make a decision. Making payments on debt that will eventually get discharged is throwing money away.

LadyintheRed, we have been vascilating over the timing of an evitable chapter 13 for about 5 months now. First, we wanted to complete our modification so that the mortgage arrears were added back into the mortgage and not the bankruptcy. We have finished trial payments, and have paid one permanent mod payment, but our lender's records have not been updated to reflect the mod, and we are still in a "pay by money order or phone" mode. Our lender has said everything should be recorded and done by around the first of November.

We are struggling to pay the credit cards something, (in most cases, about half the minimum) in order that lawsuits won't be filed before we can file chp 13. As we found out, that doesn't matter; we are still listed as late if we don't send minimum amount.

My question is, should we stop paying now? Are we likely to be able to hold off lawsuits until we can file chapter 13 (probably 1st of December, both because of finalizing of loan mod and getting attorney fees together). Does anyone know if having any amount of payment in our record will cause the credit cards to hold off filing a lawsuit, or do they just look at the bottom line that we are considered late because we have not made minimum payments?

Lastly, our other hesitation is the Maryland law with regard to loand modifications. There is the looming fear that because of their laws, either our lender will ask us to get a subordination agreement from our 2nd mortgage holder (they said they MIGHT in the modification documents), or else they will record the modification without a subordination agreement and thus give up lien position to the 2nd. Is it correct that if the 1st gives up lien position to the 2nd, then the 2nd lien will not be stripped? (we have not paid them in a year).

If we end up having to factor in the 2nd mortgage arrears AND current payments, we will not be able to keep the house).

[kornellred]

Preparing for a possible Chapter 13 filing which includes using available credit is, technically, fraudulent. It is also practically unavoidable and extremely easy to rationalize, because not even the debtor in question can be 100 percent certain that they will file. Malice aforethought is generally perceived as being outside the realm of insolvency.
The matter of fraud associated with unsecured credit is swept out of the way entirely in bankruptcy by not filing until at least 90 days of credit inactivity is verifiable. Only the facts of the case matter at that point, and the reasons why the debtor found themselves in that position are irrelevant.

[ksgirl38]

Yes, stop paying now. Of course that means you should stop using them also. If you are planning to file within the next 90 days you should be fine. You'll most likely get phone calls that you can avoid, but they won't have enough time to file a lawsuit. I made my last credit card payments in April and filed in July and a few phone calls that I managed to block were all I got.

[dmc-2008]

One way to decide whether to file a Chap 13 is to determine whether you could pay off all of your dischargeable debt in five years without BK. If not, a Chap 13 might be a good option for you.
.

That is such a good guide line! Thank you Lady

To the original poster, if you charge something big before a BK you also could be expected to make payments on it for a while before you can file as good faith. I tried to do some debt consolidation as a last ditch effort and it failed, and I am ending up in BK anyway. I just thought I would share that.

[brokehmowner]

Yes, stop paying now. Of course that means you should stop using them also. If you are planning to file within the next 90 days you should be fine. You'll most likely get phone calls that you can avoid, but they won't have enough time to file a lawsuit. I made my last credit card payments in April and filed in July and a few phone calls that I managed to block were all I got.

Thanks, ksgirl38. For the most part, I hadn't used them since April when I first started considering bk. The exceptions were a couple of automatic pays that I had a hard time figuring out how to stop without using another credit card in it's place, and school clothes for the kids back in July. That card had a zero balance when I used it, and I plan to finish paying it off in October so I won't have to list it as debt. Hope that won't cause a problem!

[ksgirl38]

Thanks, ksgirl38. For the most part, I hadn't used them since April when I first started considering bk. The exceptions were a couple of automatic pays that I had a hard time figuring out how to stop without using another credit card in it's place, and school clothes for the kids back in July. That card had a zero balance when I used it, and I plan to finish paying it off in October so I won't have to list it as debt. Hope that won't cause a problem!

I wouldn't be worried about those purchases, those are small potatoes and would be classified as necessities anyway. Is the card you are wanting to keep owned by the same company as any of the others that you are discharging? For example if you have a Citibank card you are discharging and are planning to keep a different Citibank card even though it has a 0 balance, because they are owned by the same company it might get closed anyway. Check the back of your cards.

[LadyInTheRed]

The matter of fraud associated with unsecured credit is swept out of the way entirely in bankruptcy by not filing until at least 90 days of credit inactivity is verifiable.

That's not true. If you wait until 90 days after the use of unsecured credit to file, then the debt is no longer be presumed to be fraudulent. That doesn't mean the debt could not be ruled by a court to be fraudulent if the creditor can prove the debtor incurred the debt without the intent to pay it. The OP asked if, in anticipation of filing Chap 13, he can purchase things on his credit cards. Charging anything knowing you will not pay the debt is fraud, even if the charges don't fall within the descripton of debts that the bankruptcy code presumes are fraudulent (luxury purchases of a cretain dollar amount within 90 days of filing and cash advances of a certain dollar amount within 70 days of filing).

[LadyInTheRed]

For example if you have a Citibank card you are discharging and are planning to keep a different Citibank card even though it has a 0 balance, because they are owned by the same company it might get closed anyway. Check the back of your cards.

When you file BK, you should count on all of your credit cards being cancelled regardless of whether they have a balance or another account with the same bank has a balance. It isn't unheard of for a card not to get cancelled, but it is rare.

[ksgirl38]

When you file BK, you should count on all of your credit cards being cancelled regardless of whether they have a balance or another account with the same bank has a balance. It isn't unheard of for a card not to get cancelled, but it is rare.

I had 2 that I didn't list and they are perfectly fine.

[LadyInTheRed]

I had 2 that I didn't list and they are perfectly fine.

How long ago did you file? Mine weren't all cancelled immediately. Some took 2 or 3 months.

Your accounts may stay open. Like I said, it isn't unheard of. But nobody filing BK should count on having any credit cards survive BK. Assume they will all be cancelled and be pleasantly suprised if they aren't.

[ksgirl38]

July 23rd.

[woeisme]

How long ago did you file? Mine weren't all cancelled immediately. Some took 2 or 3 months.

Your accounts may stay open. Like I said, it isn't unheard of. But nobody filing BK should count on having any credit cards survive BK. Assume they will all be cancelled and be pleasantly suprised if they aren't.

Plus if you are in a CH 13 you have to have trustee permission to incur any new debt, so using a credit card that didn't get cancelled could cause problems with the trustee. Typically they are too busy to be checking up on that kind of thing as long as the payments are coming in, but it's a really bad idea to run up debt while in an active BK, it can get your case dismissed if another creditor you are discharging on runs your credit and see it and makes a complaint.

[kornellred]

If a credit card issuer to whom you owe zero and did not list on your schedule of creditors in the bankruptcy filing checks your current credit status, it is certain that they will suspend your credit privileges. No two ways about it.