Newbie with lots of questions (sorry)

[brokeinsac]

I've been lurking for awhile and have a few questions that my wife and I have come up with. We actually met with a BK lawyer a couple months ago and have now come up with a bunch of questions AFTER the meeting (of course).

First off, we were told we couldn't/shouldn't file for 6 months due to a large balance transfer. Basically we had transferred a balance to my mother in law's card to save us from an upcoming interest hike and then the 0% period was up on her card so we were taking the money back. It was a large amount (20K), so we were told to wait. We have about 4 months left until we can file and we are finding that each month is getting tougher.

Our CC rates continue to increase, making our minimums ridiculous. Our 2nd mortgage is about to increase as it is an interest only right now. Our thinking is that we should stop paying our mortgage now so that we can save some money for our attorney's fees. We don't care to keep the house but would love to stay rent free for awhile, or a long while. Any advice on this, does this sound like a good idea?

The wild card in this is our tax refund. We normally get over 10K back in our tax refund (we claim 0 and have 2 kids plus a lot of deductions). Since we are both teachers and don't get paid in the summer, this has served as a nice way for us to save money for the summer. Now we are hesitant to file BK in 4 months because we don't want the 10K+ taken away. We need the money for summer, and we are thinking that with the mortgage of 2K+ not being paid every month, we could probably have summer money and pay off our student loans by the time the summer was over. We could then file in September and our 6 months of income would look even lower since we don't get paid for 2 months.

So a couple of questions: Should we wait until September, should we use the tax money to pay off some debt and live in the summer, or should we file as soon as possible? Will stopping payment on our mortgage for 8 months (which is about what it would be by the time Sept. got here) affect our ability to claim bankruptcy? If we use that money and our taxes to not only live, but to pay off student loans, will that draw unwanted attention from the trustee in September? From what I've seen on this forum, we should be able to stay in the house for at least a year, is that true? We have BOA and live in Sacramento, CA, so we are one of MANY that are or will be foreclosed on.

Sorry for so many questions. We've just finally decided that this is a decision that we have to make and must do. We are ready to be debt-free and live with cash. We feel like we make enough money, even with two young kids, and should be living comfortably, not worrying about every nickel and dime. Unfortunately, we spent too much for both pleasure and education for our jobs. Any assistance would be greatly appreciated.

[munchkn813]

I am new to all of this too and still trying to figure it all out and have no clue about the mortgage stuff if you are giving up the house, but are you still paying on credit cards? If so, and you are going to be filing for bk for sure - stop paying them. That was the only way we had money to be able to start paying cash for groceries, gas, etc and stop living off of the credit cards, and also save up money to pay the lawyer (still working on that as we are playing catch up on the morgtage, car and utilities first). We are getting calls like crazy from the creditors, but I just turn the do not disturb button on the phone most days and choose random times to answer so they know they are reachign us, tell them I don't have the money at this time and hang up.
We have lots of medical bills as well that I want to pay off regardless of the bk and my lawyer said that we cannot pay any large amounts to them (like several hundred) at one time or the trustee can take that money from them and then I will still owe them (if i still want to pay off those bills). I would assume they could take the money for student loans as well? I am still allowed to send payments to the drs, but in my usual smaller amounts so no red flags are raised. Credit cards I was to stop paying right away though as you are just wasting your money.
For that large of a tax return, I would say yes, you will lose it if you file before receiving it. However, when you do file, you need to have basically $0, so you would have to really spend that large amount of money down. We are worried about losing that money too (we will only get like $3-4K though and may be able to wildcard it, I am hoping anyway!). I am a teacher too, also with 2 little ones, so hate to not have that money to help get us through the summer if we can't keep it, but husband is having a hard time with the thought of not filing asap and getting this over with.
Sorry I just rambled a lot for not knowing anything really, but that's the info I have gathered. Best of luck to you.

[lrprn]

First off, we were told we couldn't/shouldn't file for 6 months due to a large balance transfer. Basically we had transferred a balance to my mother in law's card to save us from an upcoming interest hike and then the 0% period was up on her card so we were taking the money back. It was a large amount (20K), so we were told to wait. We have about 4 months left until we can file and we are finding that each month is getting tougher.

When did this transfer back and forth actually take place? Filing after such a large balance transfer back and forth, especially to a family insider, could definitely raise suspicion by both your trustee and the creditor. If the transfers are interpreted to represent a way to 'play games' with your money in an attempt to disguide it before filing (even if that wasn't your intent, and I know it wasn't), then because an insider (your MIL) was involved, you may have to wait a year after the transfers to file. Experienced bk attorneys in your area can give you an idea of how your local court may view your money-moving between you and MIL.

Our CC rates continue to increase, making our minimums ridiculous. Our 2nd mortgage is about to increase as it is an interest only right now. Our thinking is that we should stop paying our mortgage now so that we can save some money for our attorney's fees. We don't care to keep the house but would love to stay rent free for awhile, or a long while. Any advice on this, does this sound like a good idea?

Instead of stopping payment on your secured house, stop payments on your unsecured cc's first. Will that free up enough for your attorney's fees?

If you intend to surrender the house anyway when you file, then whether this is a good idea depends on which state you live in and that state's foreclosure laws. Which state do you live in? (Never mind - I see below you are in California. Here's a link to the CA foreclosure laws - http://www.foreclosures.com/pages/st...2.asp?state=CA .

CA has non-judicial foreclosures, so that makes the time you have in the house until you must leave shorter - around 120 days. However, with the market in CA in free-fall, it's hard to say what BOA might do and when they might do it.

Should we wait until September, should we use the tax money to pay off some debt and live in the summer, or should we file as soon as possible?

Given what you've told us, waiting until Sept (or even later) makes sense. That way you can spend down your tax refund on legitimate living expenses (home and car repairs, health-related things, clothes, etc) before filing. With your MIL transfers, that makes waiting longer to file even more important. You don't want your trustee to undo that transfer and get the money back from your MIL in full for your creditors.

Will stopping payment on our mortgage for 8 months (which is about what it would be by the time Sept. got here) affect our ability to claim bankruptcy

If according to the Means Test (and if necessary, Schedules) you qualify for Ch 7, then nothing affects your ability to file bankruptcy. It's the specific financial circumstances that definitely impact *when* it's best to file.

If we use that money and our taxes to not only live, but to pay off student loans, will that draw unwanted attention from the trustee in September?

Living costs are fine. Since student loans are unsecured, you can pay up to $600 to them in the three months before filing. Anything above this opens the door to your trustee going after the money as a preferential payment.

From what I've seen on this forum, we should be able to stay in the house for at least a year, is that true? We have BOA and live in Sacramento, CA, so we are one of MANY that are or will be foreclosed on.

Possible, but as I noted above, CA is a non-judicial foreclosure state. You can count on six months, maybe more. This is a great question (along with all the others) to ask during your 3-4 free interviews with experienced bk lawyers in your area.

[qsr]

You need to start talking to a lawyer. It sounds like you'll have enough cash to pay for one, especially considering the amount of money at stake. If you're going to do a loan mod you might want to get started on it ASAP as well, so it will be set before your BK.