Question 1: HHM, this is a follow-up to your answer in the other thread which I appreciate. I reflected on what you said, and if I understand this, is this scenario below correct? (numbers are theoretically large, to exaggerate the point, but this issue of trustee incentive is of interest to me).
Assume a person files chapter 7 with $500k in the checking account as liquid cash (again, large numbers to exaggerate the incentives). Person has just discovered that he has 2008 taxes due of $1 million. Person has also unsecured debt of $500k, which was incurred without fraud (as clearly this person has the cash to pay for such, now and at the time of incurring the charges). Person is voluntarily filing as he sees no way out of his scenario; let's assume he has no income for 6 months and falls below median income, means test, etc. Let's aside whether this person should file Chapter 7 or not (make it easy, assume he has no other assets, and does not prefer an IRS payment plan, etc).
OK, the creditor Trustee is salivating to get 10% of that $500k for the unsecured creditors, but this unfortunate trustee needs to find $500k more of non-exempt assets before he gets a single penny, as the $1mm IRS taxes due comes first, right? Unless the trustee is really willing to waste a lot of time going on a witch hunt, he may realize that this is a lost cause to "make money". Before anyone says anything, I recognize that trustees, as other professionals have responsibilities and other moral requirements... this question was just following up a behaviorial/incentive thread on what motivates trustees. It just struck me as the going thought seems to be to not enter Chapter 7 with a lot of secured assets, but oddly, a large amount of taxes or other senior assets could deter a trustee rather quickly...
Question 2: Second question, on behavior, this time on debtors.
In reading this and other forums, there seems to be the following general themes:
1) have a few months (the various 60,70,90 days, etc rules) of quiet period where there's no transactions on your credit cards, before filing; obviously, don't do something stupidly illegal/fraudulent
2) don't pay the monthly minimums during that time, as it's wasted money
3) if you have an auto pay plan, cancel them, or other manual payments, given the hyper-fear of preferential payments abound... or because it's wasted money
4) if you have a checking account that is linked/known to your existing cards, move the funds (but disclose all accounts honestly on your filing) to another bank, preferably not affiliated with any of your credit cards
OK, all the above seems straightforward, general thoughts. What I'm struggling with is... geez, wouldnt it be obvious to a trustee that a debtor that acts like the above has just been intending BK for a while?
Isn't it just more honest to raise one's hand at the start of all this? Yes, there could have been a credit card charge, or a balance transfer, yesterday, but if today was the "enlightenment day" where one realizes that BK is inevitable, why wait? Maybe it's the loss of hope, the crashing reality of today's economy makes you lose hope of every finding a job again, or whatever. But, why wait, for waiting's sake. If today is the honest day, why wait...
It strikes me there is a bit too much focus on "time" elapsement between last charge and filing. One could say that those months/weeks of waiting were spent trying to rejigger and fix one's finances (get a better job, seek more credit, etc), but that does not seem what is behind most of what I am reading on these threads. As a broad generalization, it seems people have realized Chapter 7 is inevitable or rather likely (a bit of a sample bias, as this is called "BKForum" for a reason, no?) and they are just waiting this time period out for its own sake.
Beyond whether waiting or not is really genuous, there is also the financial and emotional burden of waiting, rather than getting ahead with the post-dischargement life as soon as possible.
Hope my questions make sense, as I have been reading a lot of threads today, and I'm just regurgitating what seems to be the "themes" behind what is going on at times. And, I realize every case is different, and etc etc.
Thanks. This is a great forum by the way.
Assume a person files chapter 7 with $500k in the checking account as liquid cash (again, large numbers to exaggerate the incentives). Person has just discovered that he has 2008 taxes due of $1 million. Person has also unsecured debt of $500k, which was incurred without fraud (as clearly this person has the cash to pay for such, now and at the time of incurring the charges). Person is voluntarily filing as he sees no way out of his scenario; let's assume he has no income for 6 months and falls below median income, means test, etc. Let's aside whether this person should file Chapter 7 or not (make it easy, assume he has no other assets, and does not prefer an IRS payment plan, etc).
OK, the creditor Trustee is salivating to get 10% of that $500k for the unsecured creditors, but this unfortunate trustee needs to find $500k more of non-exempt assets before he gets a single penny, as the $1mm IRS taxes due comes first, right? Unless the trustee is really willing to waste a lot of time going on a witch hunt, he may realize that this is a lost cause to "make money". Before anyone says anything, I recognize that trustees, as other professionals have responsibilities and other moral requirements... this question was just following up a behaviorial/incentive thread on what motivates trustees. It just struck me as the going thought seems to be to not enter Chapter 7 with a lot of secured assets, but oddly, a large amount of taxes or other senior assets could deter a trustee rather quickly...
Question 2: Second question, on behavior, this time on debtors.
In reading this and other forums, there seems to be the following general themes:
1) have a few months (the various 60,70,90 days, etc rules) of quiet period where there's no transactions on your credit cards, before filing; obviously, don't do something stupidly illegal/fraudulent
2) don't pay the monthly minimums during that time, as it's wasted money
3) if you have an auto pay plan, cancel them, or other manual payments, given the hyper-fear of preferential payments abound... or because it's wasted money
4) if you have a checking account that is linked/known to your existing cards, move the funds (but disclose all accounts honestly on your filing) to another bank, preferably not affiliated with any of your credit cards
OK, all the above seems straightforward, general thoughts. What I'm struggling with is... geez, wouldnt it be obvious to a trustee that a debtor that acts like the above has just been intending BK for a while?
Isn't it just more honest to raise one's hand at the start of all this? Yes, there could have been a credit card charge, or a balance transfer, yesterday, but if today was the "enlightenment day" where one realizes that BK is inevitable, why wait? Maybe it's the loss of hope, the crashing reality of today's economy makes you lose hope of every finding a job again, or whatever. But, why wait, for waiting's sake. If today is the honest day, why wait...
It strikes me there is a bit too much focus on "time" elapsement between last charge and filing. One could say that those months/weeks of waiting were spent trying to rejigger and fix one's finances (get a better job, seek more credit, etc), but that does not seem what is behind most of what I am reading on these threads. As a broad generalization, it seems people have realized Chapter 7 is inevitable or rather likely (a bit of a sample bias, as this is called "BKForum" for a reason, no?) and they are just waiting this time period out for its own sake.
Beyond whether waiting or not is really genuous, there is also the financial and emotional burden of waiting, rather than getting ahead with the post-dischargement life as soon as possible.
Hope my questions make sense, as I have been reading a lot of threads today, and I'm just regurgitating what seems to be the "themes" behind what is going on at times. And, I realize every case is different, and etc etc.
Thanks. This is a great forum by the way.
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