Why is $100K unsecured a magic number?

[JEM]

So to speak....

I've been doing more reading here today and I've come upon this topic a few times--that those with $100K in unsecured are looked at more closely when trying to do a Ch 7. What exactly do they look for?

Does this apply to those under the median income as well?

I decided to sit down and look at each amount we owe, because well, honestly we've had our head in the sand a bit. I was thinking it was close to $70K--it's closer to $85K. Honestly, I feel like vomiting.

Here's my concern, if we go months without paying, between fees, and charges and whatever else the CC companies "add"--we could easily and quickly get over the $100K mark.

Does that mean we'll have to do a Ch 13?

[justbroke]

It's not a magic number. It's a number we use because there are certain "triggers" that get the United Stated Trustee's (UST) attention. Let's say you earned $24K a year and had $70K in unsecured debt. The UST would certainly wonder about that too. The $100K figure will almost certainly guarantee a closer look by the UST, however your specific case and income could prompt other reasons to look more closer at your financial dealing.

The UST can't review every single case in detail. Instead, they opt for "random" audits, and then they have certain things to look for. Being over-the-median is an indicator to look more closely... just as having more than $100K in unsecured debt (not due primarily to medical expenses). If you're under-the-median, you may also be examined more closely should you attempt to discharge over $100K. However, the UST may find that your case deserves special attention because other things don't add up.

The reason most people who file want to be under-the-median when the file, is to not be subject to scrutiny, right out of the gate!

None of this at all means you'll be in a Chapter 13, or that the UST will "push" you into a Chapter 13. It just means that your case warrants a closer examination to determine if you're abusing Bankruptcy.

[JEM]

It's not a magic number. It's a number we use because there are certain "triggers" that get the United Stated Trustee's (UST) attention. Let's say you earned $24K a year and had $70K in unsecured debt. The UST would certainly wonder about that too. The $100K figure will almost certainly guarantee a closer look by the UST, however your specific case and income could prompt other reasons to look more closer at your financial dealing.

The UST can't review every single case in detail. Instead, they opt for "random" audits, and then they have certain things to look for. Being over-the-median is an indicator to look more closely... just as having more than $100K in unsecured debt (not due primarily to medical expenses). If you're under-the-median, you may also be examined more closely should you attempt to discharge over $100K. However, the UST may find that your case deserves special attention because other things don't add up.

The reason most people who file want to be under-the-median when the file, is to not be subject to scrutiny, right out of the gate!

None of this at all means you'll be in a Chapter 13, or that the UST will "push" you into a Chapter 13. It just means that your case warrants a closer examination to determine if you're abusing Bankruptcy.

What you if you were under the median income--and your DMI wasn't enough to be in a chapter 13, BUT you had VERY close to the $100K unsecured. Could they still force you into a Ch 13 even if you didn't have the disposable income to pay into a Ch 13?

I'm sure I'm putting the horse before the cart here, but I'm freaking out a little bit.

[justbroke]

What you if you were under the median income--and your DMI wasn't enough to be in a chapter 13, BUT you had VERY close to the $100K unsecured. Could they still force you into a Ch 13 even if you didn't have the disposable income to pay into a Ch 13?

No, they can't force you into a Chapter 13 with no disposable income. What they can question is whether you were doing "eve of Bankruptcy" spending and that you don't deserve the benefit of a discharge in a Chapter 7.

Bankruptcy isn't a right -- even though some argue that it should be. You still need to prove that you filed in good faith (aren't lying on your forms or seeking to frustrate creditor attempts to collect), are a "needy" debtor, and that you can't provide some dividend to the unsecured creditors. The Bankruptcy Abuse and Consumer Protection Act of 2005 (BAPCPA) is directly related to the abuse of Bankruptcy by "certain" debtors who used the system as the "purge" part of binge-and-purge.

The reason a Creditor and UST may wonder about a low income debtor having significant unsecured debt, is that they wonder if the Debtor knew they could never pay for the things they purchased. However many of those things are hard to prove, but if you took large cash advances and bought plasma TVs, Jet Skis and other luxury goods on the "eve" of bankruptcy... it's indicative that you may have planned the whole thing just to stiff your creditors. That's what the UST is looking for.

[aljohnson007]

Justbroke is correct. I was way under the median and no asset with unsecured debt over $100k. My case was selected for audit by the UST even after the case TT issued a no dist report.

[JEM]

No, they can't force you into a Chapter 13 with no disposable income. What they can question is whether you were doing "eve of Bankruptcy" spending and that you don't deserve the benefit of a discharge in a Chapter 7.

Bankruptcy isn't a right -- even though some argue that it should be. You still need to prove that you filed in good faith (aren't lying on your forms or seeking to frustrate creditor attempts to collect), are a "needy" debtor, and that you can't provide some dividend to the unsecured creditors. The Bankruptcy Abuse and Consumer Protection Act of 2005 (BAPCPA) is directly related to the abuse of Bankruptcy by "certain" debtors who used the system as the "purge" part of binge-and-purge.

The reason a Creditor and UST may wonder about a low income debtor having significant unsecured debt, is that they wonder if the Debtor knew they could never pay for the things they purchased. However many of those things are hard to prove, but if you took large cash advances and bought plasma TVs, Jet Skis and other luxury goods on the "eve" of bankruptcy... it's indicative that you may have planned the whole thing just to stiff your creditors. That's what the UST is looking for.

Ok, well that does make me feel a little better. No jet skis, fancy electronics, or anything like that.

Or, I guess depending on how you look at it, that makes me feel worse, we have all this debt and nothing to show for it.

[JEM]

Justbroke is correct. I was way under the median and no asset with unsecured debt over $100k. My case was selected for audit by the UST even after the case TT issued a no dist report.

What exactly happens when they select your case for audit?

[aljohnson007]

Not a big deal as this is only a desk audit. The UST will require you to submit six mos bank statements, pay verifications and explanation of any transaction of $500 or more. Should the audit firm find any misstatements, you will be afforded an opportunity to explain before the final report is submitted back to the UST. If you are selected for audit, it is imperatiive that you provide all required documents. I thought it was rather odd they did not ask for any cc statements. As the saying goes, when asked what time it is, tell them but don't explain how to build the clock. Wishing you the best.

[JEM]

Not a big deal as this is only a desk audit. The UST will require you to submit six mos bank statements, pay verifications and explanation of any transaction of $500 or more. Should the audit firm find any misstatements, you will be afforded an opportunity to explain before the final report is submitted back to the UST. If you are selected for audit, it is imperatiive that you provide all required documents. I thought it was rather odd they did not ask for any cc statements. As the saying goes, when asked what time it is, tell them but don't explain how to build the clock. Wishing you the best.

I was thinking we'd have to provide all of that anyway.

The transaction of $500 or more, is that on the bank statement--if they aren't asking for CC statements?

So it's not a "given" that they all will be audited? It's kind of random?

[pcn]

We were under 100k (approx 85k) when we stopped paying in Feb, but now are surely over with all the nice late fees and 29% interest charges... We will have to see how that plays out. Over median also.

[JimKutkowski]

You can't be forced into a Chapter 13 but your case can be dismissed.

[albacore44]

i'm rapidly approaching $200k with all the late fee's interest etc.

[toomanycards]

Justbroke is correct. I was way under the median and no asset with unsecured debt over $100k. My case was selected for audit by the UST even after the case TT issued a no dist report.

Can I ask how long after the TT issued a no dist repot that the UST selected you for an audit?

[EbbTide]

I think the two most important factors are.. how old the debt is and your current income.

When I filed, my average monthly income based on the 6 months prior to filing date was $1776. ACK... total debt $87,000. In looking at my 08 and 07 tax returns, it was a no-brainer to see that my income had dropped 80% in two years. The debt -the principal of which - was incurred prior to 2004... when I made close to $100,000 a year. Most of the $87,000 was interest and fees. My car - 7 years old - I own free and clear. Just the usual household goods.. no real estate, no retirement account.. just cash on hand of $800 at time of filing.

The trustee didn't blink an eyelash.

[JEM]

I think the two most important factors are.. how old the debt is and your current income.

When I filed, my average monthly income based on the 6 months prior to filing date was $1776. ACK... total debt $87,000. In looking at my 08 and 07 tax returns, it was a no-brainer to see that my income had dropped 80% in two years. The debt -the principal of which - was incurred prior to 2004... when I made close to $100,000 a year. Most of the $87,000 was interest and fees. My car - 7 years old - I own free and clear. Just the usual household goods.. no real estate, no retirement account.. just cash on hand of $800 at time of filing.

The trustee didn't blink an eyelash.

The debt is really from about the last 5 yrs--a little of it from longer ago than that. And while our income has remained fairly steady "overall" (I know, we are one of the rare ones)--there have been pockets where it's gone down, and we used cards for "living expenses" etc...

Also moving into a house and needing things that houses always need (not new furniture), and some over spending on eating out. Some expensive dental work....

We have a house, less than $10K equity, no retirement, no fancy cars etc....

Honestly, it was just overspending and dumb decisions I guess.