question on credit card stmts and spending

[henris69]

hello everyone. ive been reading these excellent forums for a very long time and now have a question.

i plan on filing chapter 7. have a mortgage i will reaffirm and also a car loan. attorney thinks these are both fine. i earn quite a bit over the mean income like several others on here, but i have justifiable expenses that push me to the point where the presumption of abuse does not arise. my attorney thikns i have a good chapter 7 case. the main reason i am doing this is to shed unsecured cc debt (around one hundre thousands) in light of the fact that my expenses exceed my income due to medical issues.

most of this debt was incurred over the past few years for consumer goods and living expenses (food, rent, and so on), however it is also true that there were some purchases i could have honestly done without (such as a pair of earrings, eating out a few times, one or two nights in the hotel). i realize, having taken a debtor education class, that there is a difference between 'want' and 'need'. sadly, i spent more than i should have for these few extra items. over the past couple years though, about 75% of the unsecured debt relates to real expenses i mentioned (food, rent, etc.) and about 25% relates to the 'frivolous' spending. im being honest with myself.

so here is the essence of my question: what happens if the trustee looks through my paperwork and asks how i got one-hundred thousand in debt? time and again i hear people say that the trustee asked "what did you spend all this money on?" what happens on the extreme if someone says they went to bahamas for 90% of the debt? does the case get rejected. end of story?

i will be honest and say that 75% was spending i could not avoid, but 25% were things like an ipod. does my entire case get blown up? will it convert to chapter 13? (but i dont have enough money??) will just the 25% be excluded from the discharge? how does this work in the real world because i am sure there are people in my situation who spend on what they need, but sadly a little bit on what they wanted. thanx.

[happy_ira]

Welcome Henris.

This is an interesting and very practical question. I think you hit the nail on the head when you say "real world." Personally, I find it impossible to believe that 100% of credit card spending for which people file Ch 7 relates to food, rent, etc. I think the trustees also know this deep down, but the question may be how egregious someone was. Like your Bahamas example-- racking up $80,000 on vacations, fancy jewelry, etc. is definitely in a different league than someone who spent $80,000 in earnest on rent and food and only $20,000 on eating out. Unfortunately, as most of us learn, credit cards can be bad things and we end up spending more than we should.

I'm curious to see what the more experienced folks say on here since most of the debt relates to 'real' expenses as you call it, but there is a portion that was 'extra'.

Good luck.

[TEW]

Henris69
The trustee doesn't care what you spent the money on unless there is an asset he can take from you. He can not take a trip you took but he my look at that 20K ring you have just an example. I think those questions are more of an effort to trip you up.
My case is similar you yours I only made chapter 7 because on my expenses.
The rule of thumb is you have to look like you will be worse off after the BK then before. If you decide the house is to expensive then it needs to go. Just another example.

[cupcake]

Does it really matter what the credit cards were used for as long as there is no presumption of abuse? If, at the time the debt was incurred, one had a job, was able to make at least minimum payments, intended to pay the CC company and had no intentions of filing BK at the time, I don't see why it would matter. As far as I know, there are no laws that would restrict BK for people who used CCs for purchase of non-essential items.

Someone, please correct me if I am wrong!!

[happy_ira]

Does it really matter what the credit cards were used for as long as there is no presumption of abuse? If, at the time the debt was incurred, one had a job, was able to make at least minimum payments, intended to pay the CC company and had no intentions of filing BK at the time, I don't see why it would matter. As far as I know, there are no laws that would restrict BK for people who used CCs for purchase of non-essential items.

Someone, please correct me if I am wrong!!

This is a fascinating point - I am curious to hear more on this.

(Aside, the BK Trustee on day of my 341 asked someone before me "What did you spend all this on?" and since she didnt have a good answer, he asked to see the credit card stmts. Is he fishing for something like a plasma TV, jewelery, etc that he coudl sell? Or can he indeed throw her case out because she spent it on tanning sessions at the salon and too many fancy meals?)

[happy_ira]

The trustee doesn't care what you spent the money on unless there is an asset he can take from you.

Then why do the BK Trustee's grill people who have credit card debt?!? Is it really all about finding assets that he can take (so he can make a % cut/commissions?)?!?!?

My trustee asked what I spent the credit card debt on (answer: mostly living expenses) and then he saw I had no other assets he could sell, so he got bored and ended it... until the US Trustee piped in that he wants to see proof of some of my expenses are so high... but that is for another thread.

[TEW]

Then why do the BK Trustee's grill people who have credit card debt?!? Is it really all about finding assets that he can take (so he can make a % cut/commissions?)?!?!?

My trustee asked what I spent the credit card debt on (answer: mostly living expenses) and then he saw I had no other assets he could sell, so he got bored and ended it... until the US Trustee piped in that he wants to see proof of some of my expenses are so high... but that is for another thread.

Same with mine he asked about the car and the house. there was nothing to be gained for him out of either so he turned off his PC. Made some remarkes to my lawyer about my exemtions since i sqeeked by on those too. They do this for money bottom line.........................

[FreshLikeADaisy]

Does it really matter what the credit cards were used for as long as there is no presumption of abuse? If, at the time the debt was incurred, one had a job, was able to make at least minimum payments, intended to pay the CC company and had no intentions of filing BK at the time, I don't see why it would matter. As far as I know, there are no laws that would restrict BK for people who used CCs for purchase of non-essential items.

Someone, please correct me if I am wrong!!

Well, there is the 70/90 day rule: if you have made "luxury" purchases on a credit card within 70 days of filing bk, that particular debt can be denied discharge.

Beyond that, no, I don't know of one. But I do remember reading a local decision (I think it was 2005, prior to BAPCPA) that described in detail the debtor's luxurious lifestyle and denied his bk based on a totality of circumstances. But to be honest, this guy was living a Donald Trump kind of lifestyle, so Henris69's scenario doesn't even come close to his. Even if it was two nights at the Plaza it didn't come close.

My personal opinion is that the average trustee can see pretty much at a glance (depending on the docs requested ) exactly how someone has been living for the last couple of years, and it's egregious enough for further action on his part, or it's not. I personally do not consider the OP's "excesses" (cough!) to be enough to peg his personal fraud meter: he will see very quickly -- especially if he requests bank statements, tax returns, and cc statements -- that the *majority* of her expenses were living expenses. When I filed, my trustee had me sign a very broad waiver so that he could access my financial records himself; I was very glad he did, because there was no better proof as to how poor I really was.

I wish the OP every success!

[happy_ira]

I personally do not consider the OP's "excesses" (cough!) to be enough to peg his personal fraud meter: he will see very quickly -- especially if he requests bank statements, tax returns, and cc statements -- that the *majority* of her expenses were living expenses. When I filed, my trustee had me sign a very broad waiver so that he could access my financial records himself; I was very glad he did, because there was no better proof as to how poor I really was.

I wish the OP every success!

What is "OP"?

[FreshLikeADaisy]

Original Poster -- in this case, Henris69.

[magyar123]

Most of my credit card charges were for major car repairs, overseas (Europe) flights, and vet (my cat) bills. Trustee just made one comment ("that sure was a waste of money") when he saw the charges on there for two season tickets to see Oakland Raiders football games.

[PoorGrammyinBK7]

The trustee is looking for assets, preferential payments, fraudulent transfers of property to insiders and /non-dischargeable debt.

A creditor might try to challenge expenditures - if, for example, its a credit card and you charged $20K just 4 months ago for a cruise or jewelry or something and have not made a payment since - that would very possibly be fraudulent and the creditor would bring an adversary proceeding. (Don't know if that is a good example - just thinking out loud here..)

[outofluck07]

How far back can they look at credit card statements and bank statements? Do you need to bring a whole filing cabinet of documents with you to the 341?

[magyar123]

How far back can they look at credit card statements and bank statements? Do you need to bring a whole filing cabinet of documents with you to the 341?

Trustees "usually" only want bank statements, some 6 months worth, others a year's worth..

[ready2puke]

bottom line is the Trustee gets a whopping 10% of the amount he can collect, sell assets, etc. the rest goes to creditors. It has to be worth the trouble of filing paper work and his time to be noteworthy....I think lol????