Question: "preferential" to pay off one account?

[nickifan]

This may be a dumb question...but...as of last week I am not paying any of my creditors, except for Macy's.

I owe them not quite $60, and I've been sending $10 because I'd like to pay it off and have one department store card left so I could buy clothes if I need to!

My next payment is due March 3rd, and as I sit here staring at my checkbook (and believe me $10 is a BIG deal right now!) ... it occurs to me that this may be for naught if it's considered "preferential" to keep paying them when I've stopped everyone else??

Would it make a difference if I tried to scrape the amount together to pay it off this month in full?

Timing, if it matters: I plan to finally sit down with the attorney I plan to hire sometime in March to go over the office questionnaire, and hopefully to give a retainer at the end of that meeting to go forward on Ch 7.

[MSbklawyer]

This may be a dumb question...but...as of last week I am not paying any of my creditors, except for Macy's.

I owe them not quite $60, and I've been sending $10 because I'd like to pay it off and have one department store card left so I could buy clothes if I need to!

My next payment is due March 3rd, and as I sit here staring at my checkbook (and believe me $10 is a BIG deal right now!) ... it occurs to me that this may be for naught if it's considered "preferential" to keep paying them when I've stopped everyone else??

Would it make a difference if I tried to scrape the amount together to pay it off this month in full?

Timing, if it matters: I plan to finally sit down with the attorney I plan to hire sometime in March to go over the office questionnaire, and hopefully to give a retainer at the end of that meeting to go forward on Ch 7.

Technically, yes, your paying off your Macy's card is an avoidable preference. Is it going to make a difference? No. For two reasons: 1) No trustee, not even in his wildest fit of avaricious greed, is going to even waste the spit it takes to seal an envelope on the "Dear Macy's" letter it would take to claw back a mere $60. Macy's CFO can sleep soundly tonight in the perfect assurance that the $60 that you sent them is now safely in their hands 2) Macy's is going to cancel your card anyway as soon as they find out about your bankruptcy. So make plans to pay cash for your clothes.

[nickifan]

Technically, yes, your paying off your Macy's card is an avoidable preference. Is it going to make a difference? No. For two reasons: 1) No trustee, not even in his wildest fit of avaricious greed, is going to even waste the spit it takes to seal an envelope on the "Dear Macy's" letter it would take to claw back a mere $60. Macy's CFO can sleep soundly tonight in the perfect assurance that the $60 that you sent them is now safely in their hands 2) Macy's is going to cancel your card anyway as soon as they find out about your bankruptcy. So make plans to pay cash for your clothes.

Really??? Even if I don't owe them anything and was always a good customer they'll cancel me anyway?
Geez.

Thanks for all you do on this forum, MSBklawyer....
Now, could you trot down to the thread in this same forum about "Worried committed fraud prior to filing..." and weigh in on my hand-wringing there about a lot of money I've given to a relative???

[HHM]

Really??? Even if I don't owe them anything and was always a good customer they'll cancel me anyway?
Geez.

Thanks for all you do on this forum, MSBklawyer....
Now, could you trot down to the thread in this same forum about "Worried committed fraud prior to filing..." and weigh in on my hand-wringing there about a lot of money I've given to a relative???

Once the bank audits your credit report (which happens about every month) and sees the BK, the lender will close the card.

It is "possible" it could stay open, but in today's credit environment, the card is as good as gone once you file BK.

[gmk]

While I fully expect that all our creditors will cancel every account we have after BK I wonder what the effect of the new (Feb '10) consumer credit law will have on this?

I was under the impression, perhaps wrongly, that the new law had a provision that creditor "A" couldn't do things like jack up your interest rate (assuming you're current) if you had your rate jacked up by creditor "B" perhaps for a late payment. I think this is called Universal default or something like that.

While BK is not necessarily in the same league as a missed/late payment I wonder if similar protection exists post BK. IOW, if I have a credit card that is open but zero balance with an excellent - no missed payments - track record would closing the account by creditor A because creditor B has been discharged be in violation of the new law?

[nickifan]

While I fully expect that all our creditors will cancel every account we have after BK I wonder what the effect of the new (Feb '10) consumer credit law will have on this?

I was under the impression, perhaps wrongly, that the new law had a provision that creditor "A" couldn't do things like jack up your interest rate (assuming you're current) if you had your rate jacked up by creditor "B" perhaps for a late payment. I think this is called Universal default or something like that.

While BK is not necessarily in the same league as a missed/late payment I wonder if similar protection exists post BK. IOW, if I have a credit card that is open but zero balance with an excellent - no missed payments - track record would closing the account by creditor A because creditor B has been discharged be in violation of the new law?

Yeah, what he said?!?

[msm859]

does anyone know the theory behind closing your paid off credit cards if you file bk? i don't understand the risk to like Macy's. After you file you can't do it again for 8 years so it seems that you would be a good risk.

[frogger]

It doesn't matter if anyone understands or likes it. When you bk, your cards are going to be closed. When you bk, you don't need or deserve a credit card again until you are in a position to not need it.

You must learn to live on what you have first.

[HHM]

does anyone know the theory behind closing your paid off credit cards if you file bk? i don't understand the risk to like Macy's. After you file you can't do it again for 8 years so it seems that you would be a good risk.

As frogger says, it really doesn't matter, it is out of your control so why worry about it.

There are 2 reasons:
(1) Every level of credit card has a credit profile, that is, certain criteria for giving the card to someone (certain credit score, amount of stated income, either having or not having certain things on the credit report, etc). For most credit profiles, a recent BK disqualifies you. You no longer fit the credit profile.

(2) The legal argument is that regardless if the card is actually listed, the bank doesn't want to take a risk in violating the automatic stay or discharge. So, they simply close the card to avoid risk.

[wanabath]

I dont know why anyone would want to have a credit card to use after a BK.

[AngelinaCat]

I hear you wanabath, loud and clear. My 'Hub and I have not looked at our credit reports since our Discharge, though we probably should just to see what is there.

Likewise, when our last checkbook with the CU ran out, more than a year ago, we did not request another box.

Our reasoning is that with more and more financial transactions happening online, a paper check, wending its way through the Postal Service is no longer going to make its way to the bank in time to shake hands with your paycheck deposit. 'Float Time' is no more.

[blessed]

We thought the same thing nickifan. We wanted to pay the last $180 to Best Buy out of pure good-faith (funny huh?) for our TV and our attorney said we're flushing that money down the drain. They aren't going to repo the TV and they will close the card, so don't bother.

[gmk]

I will get a CC of some sort after BK to begin reestablishing my credit rating. I will use it to make small purchases, in situations where I may have used my debit card or cash and keep it current, on time, etc. It will take a long time for any significant movement to occur but if I'm in a situation where my credit report comes into play, like employment, I can point out that I'm showing a track record of recovery.

To use a CC for things I can't pay cash for. That's a no no for me.

[OhioFiler]

I dont know why anyone would want to have a credit card to use after a BK.

It depends on why one would want a credit card post-bankruptcy. If it is to return to spending money when none exists it's a poor idea. If it is to use the card responsibly it's a fine idea.

Why do so many think they can't live life after bk responsibly IF they have a credit card in their purse or wallet? I don't get it.

[aljohnson007]

Sears cancelled my zero balance cc that I had for over 40 years without explanation. My Visa card, also with zero balance and $5k limit, remained open and I use it for small purchases "just to use it" and pay it off every month. All I can say is some do and some don't.