What to do with cash?

[thx4help]

Hello Everyone,

I am strongly considering filing Ch7 within the next 4-6 months.

I have a question I can't find an answer to, maybe someone here will know what the answer is. Here is the situation.

I have no income (failed business), and have not had any income in over 1 year. I owe $130k+ in credit card debt.

I had some cash saved up which supported me for the first half year, then for the second half of the year basically maxed out all my credit cards with cash advances to pay bills and basic living expenses (only the necessities). I also have an investment property which I refinanced and used it to pay $23k AmEx (charge card) bill which was in collection and my other minimum payments. This brings me fully up to date with all my bills as of today. However, I'm down to $300 to my name, so no money to pay any other bill going forward, need the $300 to eat.

I'm maxed out, and my monthly minimum bills (between car/home/CC/utilities) are close to $7000/mo.

I don't care about keeping my primary residence or my car (no equity in the car). I am also trying to sell my investment property, and I think I can realistically walk away with $20-30k cash if I'm able to sell it.

So, my question is this: The $20-30k is not enough to help my situation, I can use it to make payments and I'll be broke within 3-4 months again with minimal reduction in my total debt. Since bankruptcy is pretty much my only option, what can I do with the cash?

The moral thing would be to just give it to the creditors, but I'm reading in this forum that it might not be the smartest choice.

I can't buy any assets because they'll just be taken away when I file, and if I just put it in the bank, it will be taken away too.

What can I do with it? If I blow it on things like a vacation or whatever, then that will get me in trouble when I file and they ask how come I blew it instead of paying the creditors?

Thanks.

[thx4help]

I have a follow up question.

I need to talk to my accountant, but the cash will most likely be taxable. If so, I will need to set a portion of it aside to pay the taxes next year. Will I be able to keep that cash to pay the taxes or will it be taken away after I file and I will somehow have to come up with cash next year to pay my income taxes?

[HHM]

First, a practical question...

How do you anticipate making ends meet if you file BK. If there is a "cardinal" rule of BK, it is that you DO NOT file until you have enough money coming in the door (income) to pay your basic living expenses.

Your bigger problem is that you need income...plain and simple. Until you get cash in the door (THAT IS NOT A LOAN OR CREDIT), you are not in a position to file BK.

[thx4help]

Hi HHM,

Thank you for your reply. I did not mention before, a divorce is the main contributor to failure of business (freezing of assets, etc) and me not making any income in a year. The divorce should be finished in the next few months. I will be able to earn an income, especially one that would only need to cover only basic living expenses. I'll end up either getting into another business or get regular employment. But it would not be the kind of income that would be able to cover my current $7k/mo obligations.

I hope I'm not coming off sounding like an a-hole asking "how I should dispose of $30k"

[HHM]

No, you are not coming off like an a-hole Your's is a common tale in BK.

But, given your further explanation, BK still seems a bit premature. In the mean time, simply live off of that money and find a way to CUT THOSE EXPENSES.

You really need to hold off filing BK until you HAVE that job or the business starts producing enough income for you to live.

I realize that divorce is hard, but you have more hard decisions to make about lifestyle and what you can really afford.

[Runnin on empty]

Definitely heed HHM's words, but I can pretty much tell you right here and now, that barring catastrophic medical bills, I can't see a way that you'd be able to dispose of $20K-$30K and not have the trustee (rightly) charge you with fraud.

Bankruptcy shouldn't be a "get out of debt jail free card". My personal opinion, which isn't worth a whole lot because I am not a lawyer and I didn't stay at a Holiday Inn Express last night, but I would say to leave the investment property as is, and let the trustee decide what to do with it. Chances are, he or she will sell it and use the proceeds to satisfy some creditors. Same thing will happen if you sell the investment property yourself and spend some/all of the proceeds on anything not 100% kosher in the eyes of your local trustee, and who knows what that may be. I'd start calling around to lawyers and getting free consultations, ect, but other than that, find yourself some stable employment first and foremost.

[keepmine]

Don't sell anything until you speak with a lawyer.
If you do sell, pay those taxes before you file bk. Tax debt is a priority debt-the trustee may not be pleased but there's nothing they can do about.

[JRScott]

Since the divorce proceedings are going on now, I'd let them conclude before filing bankruptcy. Also don't sell any property that could be considered part of the divorce estate.

I also have to ask the debts you paid off where they joint accounts or just yours? If joint or if you live in a communal property state then your soon to be ex spouse is also legally obligated for them.

I would immediately stop paying on any unsecured debt.

Next you need to find a job, even if its flipping burgers to tide you over. 300 dollars isn't going to cover food for 2 months. Ideally you need a job that will at least cover the mortgage, car, and basic necessities.

You might could look for help from local churches etc, but most will want you to have some sort of job or might only help you a month or two. You might could get help for utilities and food from them, some might even help on the mortgage a month or so. They will most likely ask you to attend services however some will help even if you fail to attend.

I see no real way of disposing of such a large amount of cash without raising major flags with the Trustee. It might be better once the divorce is finalized to file bankruptcy as you seem to want and then just surrender the properties in the bankruptcy as it is likely the Trustee would take the money anyway.

Another option might be short selling the home and investment property if your bank will allow. However that will still leave you with no money.

You probably need to talk to your divorce attorney before doing anything with any property that is involved. You might also start to visit local bankruptcy attorneys and see what they think of your situation. Most will give a free first consultation.

[thx4help]

Thanks everybody for your input.

HHM, why do you feel BK still seems a bit premature? I did just start exploring bk within the last 4-5 days, so maybe I'm thinking on the wrong path?

The thing is, I can not reduce my monthly expenses. I am not spending any money on anything other than minimum cc payments, mortgages, car payment, utilities, food and gas. I do pay for cable so I could cut that, but taking $60 off my monthly $7000 bill will not dig me out of this hole. (car has no equity so can't sell it, although I have been trying to do so for last couple of months, no takers)

If I took the $30k and paid to creditors, I would still owe $100k and that would probably reduce my monthly bill to $5800 (cause if I sell the property the morgage payment will go away). But even with that, although I know I can/will get a decent job, it would not be a job that would net me $5800/mo just so I break even, and since paying just minimum payments, that would have to continue for the next 20 years.

Blowing the $30k does feel wrong, that's why I posted the question here.

Also, reading this forum, it would probably be close to 6 months from now before I file, because I just stopped stealing from peter to pay paul about a week ago, and we're talking probably $50k in the last bunch of months. But all did go to just paying the bills and necessities. Since I've been in a divorce for a year, I've been very clearly instructed to not spend money on anything other than necessary living expenses, and I have not done any "unnecessary" spending.

Lastly, I just wanted to clarify that when I say I didn't have any income in the last year, it's not because I've been sitting on the couch all year. I've been trying to make a go of the business, every day, but simply there are more expenses than income in the business, so there is nothing left for me (my creditors).

I will definitely be talking to attorneys, next week. I'm going through all the posts in this forum (awesome forum!) to learn as much as I can about bk, which I think will make me better prepared to ask the right questions when I do talk to them.

[JRScott]

What is your expenses without the credit card minimums?

I'd stop paying them immediately if you are filing bankruptcy.

Starting a business can be really hard. Sit down and do some P/L statements for the last 3 months. See if there is any expense you can cut or lower for the business is my best advice there.

[CindyLou]

What is your tax bill going to be? I woud say that you shoud wait and pay your tax bill with the money, then file. End of story.

[keepmine]

The reason HHM gave this advice is simple. You can only file bk {Chapter 7} every 8 years. What if you file and 6 months later get sick and have no insurance. Those debts will be with you for a long time.
It's best to get some stability. A paycheck, insurance,etc. before filing. We call that pre-planning around here.