Stop paying credit cards?

[Jovigirl22]

Yesterday, one of my "big" cards was due, $400.00 min payment. I just couldnt make it work, all of my tax return is gone, which is what I kept transfering into the checking acct to pay my cc's. We are over the means (median income is 70,612, we are at 75,000). Our lawyer said we had to wait 6 months after receiving our tax refund, which puts us as filing Nov 1. My projected income between now and than still leaves us with negative DMI on the means test, but my husband works for Ford, and I am afraid he will all of a sudden get overtime in August and that will screw the whole thing up. So, while we are certain BK is in our future, just cant be sure it is going to be Nov 1. Everyone says to stop paying CC's whenever you know you are going to file. Is this too soon? What if I quit paying some, but not all? While I cant afford a 500 Citi, 300 discover, 350 discover, and 400 hsbc, I can afford the 15 Kohls and 20 menards. DOes it have to be all or nothing? And, I just read a post how it hurts your credit more to stop paying your cc's, then BK............really? I pretty much thought the BK screwed up your credit, and thats as bad as it got. If this does turn into 6 mo's or more, I am sure we will be sued.......is that more negative than still paying, then filing BK?

[BobMango]

Well first off you may want to find an attorney that will really help you, not just take your money to fill out some forms. From you situation it sounds like a Chapter 7 is feasible given your DMI. Many people over the median have successful Chapter 7 filings.

Secondly, if you know you are going to file (and based on those CC payment and your income, I'd say that's a given) then you are indeed wasting money by continuing to pay. I'm not sure how much it hurts your credit score to not pay for months before filing. I stopped paying most of my CCs and one of my mortgages last Feb, had a foreclosure and was sued by Chase in Sept, then filed in Oct. I was discharged in Feb 10, and my real credit scores are now 635, 644 and 645.

Really though, credit scores are not your biggest worry. Waiting to file just means more months of worry and stress. I'd really advise you to find an attorney willing to consider filing a Chapter 7 for you now. Good luck.

[Jovigirl22]

Bob, thanks for the reply..........this forum is full of so much advice and usefull information!

This was my 2nd atty consult and I was told that in this district, there are 2 trustees, and they are VERY strict, and will absolutley count our tax refund as income. We got back almost $10,000 from our tax refund (last year, had very high withholdings, but changed our exemptions Jan 1rst). that would be another $1666 a month when divided by six! This atty files all of his cases in this district, where the first atty is from another county, and files mostly in a northern district, he disagreed, but again, doesnt know these trustees very well. Another dissapointing thing was that when projecting income, I counted a few days of OT for the husband to see where we would be, it had us with $40 DMI. the Nolo means test said we passed, not enough DMI to pay creditors (54,000 cc debt), so we can do a 7. This atty said no way, these trustees would want ANY DMI for a 13, even if it was $5.00. REally??????

[BobMango]

Most attorneys like a nice clean case that sails through. Based on your information it would be a bit of a battle but I still think it's one you could win. If you are over the median, you're over. That's just one part of the means test.

The key will be to make sure that your Schedules I & J are bulletproof. Your expenses need to be iron clad so that the trustee can't disallow them and push your DMI up. You may want to spend a little money on PACER to research cases in your district. The fees can rack up but being informed of what other cases look like might be worth it. I'd also make sure you get the IRS standards to compare with your expenses.

You have to make the decision as to whether you wait for your median to drop and deal with that stress, or file sooner and risk getting pushed into a 13. Remember, you don't have to take a 13, you can have the case dismissed if that's how they want to push you. Then wait a bit and when your median is in a "better" range, you can file for the 7.

Doesn't sound like either approach will be particularly easy, but I think a lot of folks worry too much on the median and disregard the second half of the means test.

[daytona]

Most cards will "charge off" at 6mo of no pay, then they will usually transfer to outside collections. When you get a letter from the outside CA you can DV them to buy a couple of months, next are suits, or threats of...no biggie if you get one, just answer it...if you go for discovery, etc you can buy another 6-9mo before getting a judgement and/or garnishment...point is you have lots of time and if you know you are going to BK anyway any judgements, etc will get wiped out in the BK...don't sweat it.

Almost no one DV's or bothers to answer suits, this is what the creditors count on..it's a easy win for them, cheap, and they can quickly get judgement / garnish. Something like 93% of all summons for cards are never answered...no answer = quick judgement for creditors. DV and/or answer makes you a pain to the CA's and moves you down their priorty list, they focus on the easy stuff first.

Your credit is going to have about the same blemish as it would have had with lates IMO. A BK is a BK to most lenders weather you were late or not before probably won't matter much in the grand scheme.

I would not talk to any creditor or collection agency at all if you are certain that you are filing down the road...there is no point, all they will try to do is get you to pay, play lets make a deal, or try to extract info from you about assets, employment, circumstances, etc. BK to creditors is like using a nuclear bomb on someone who just shot a spitball at you...

[dmu]

The key will be to make sure that your Schedules I & J are bulletproof. Your expenses need to be iron clad so that the trustee can't disallow them and push your DMI up. You may want to spend a little money on PACER to research cases in your district. The fees can rack up but being informed of what other cases look like might be worth it.

Great advice! Can you expound on making your expenses iron clad. This is something I definitely need to learn how to do.

[Jovigirl22]

When you get a letter from the outside CA you can DV them to buy a couple of months,



What does DV mean?

Thanks

[daytona]

DV = Debt Validation

[newbie2]

Great advice! Can you expound on making your expenses iron clad. This is something I definitely need to learn how to do.

Save receipts. If you have proof of your expenses it helps tremendously.

[Anozira]

Bob, thanks for the reply..........this forum is full of so much advice and usefull information!

This was my 2nd atty consult and I was told that in this district, there are 2 trustees, and they are VERY strict, and will absolutley count our tax refund as income. We got back almost $10,000 from our tax refund (last year, had very high withholdings, but changed our exemptions Jan 1rst). that would be another $1666 a month when divided by six! This atty files all of his cases in this district, where the first atty is from another county, and files mostly in a northern district, he disagreed, but again, doesnt know these trustees very well. Another dissapointing thing was that when projecting income, I counted a few days of OT for the husband to see where we would be, it had us with $40 DMI. the Nolo means test said we passed, not enough DMI to pay creditors (54,000 cc debt), so we can do a 7. This atty said no way, these trustees would want ANY DMI for a 13, even if it was $5.00. REally??????

Please forgive my ignorance, because I haven't filed and am just getting acquainted with the whole process....but why would your refund be counted as income? Don't they look at your gross income (vs next income)? If so, the refund comes from excess tax paid from the gross.

:-) It doesn't make sense, but I understand that some things don't make sense, they just ARE.

Anybody know?

Thanks!

[Jovigirl22]

Anozira,
I would like to know the same thing, but the atty we saw in this district said the trustees ALWAYS take the refund and divide it by six and add it into the income, if filing within six months of receiving it. I called another atty that a friend used, and asked him what he thought. At first he said no, then called me back after re-reading something, and said that it was enough of a gray area, that he could see how the trustee can demand it, and get away with it. Complete BS!!!! A tax refund is a REFUND of your gross income from the previous years tax overpayment, so how is this income??? Either way, I am glad I know it up front, instead of filing, then finding out we have to do a 13 due to too much DMI from the tax refund, but it still screws us up............waiting until Nov 1 is not only stressful, but I am sitting on the edge of my seat every week that my husband works...........is THIS going to be the week that the auto industry kicks butt and gets overtime? One week of time and a half screws up the whole thing for us! I think it is very possible I will completely lose my mind by Nov as it is!

[Fallonedward]

Anozira,
I would like to know the same thing, but the atty we saw in this district said the trustees ALWAYS take the refund and divide it by six and add it into the income, if filing within six months of receiving it. I called another atty that a friend used, and asked him what he thought. At first he said no, then called me back after re-reading something, and said that it was enough of a gray area, that he could see how the trustee can demand it, and get away with it. Complete BS!!!! A tax refund is a REFUND of your gross income from the previous years tax overpayment, so how is this income??? Either way, I am glad I know it up front, instead of filing, then finding out we have to do a 13 due to too much DMI from the tax refund, but it still screws us up............waiting until Nov 1 is not only stressful, but I am sitting on the edge of my seat every week that my husband works...........is THIS going to be the week that the auto industry kicks butt and gets overtime? One week of time and a half screws up the whole thing for us! I think it is very possible I will completely lose my mind by Nov as it is!

I know the first attorney we consulted with told us we had to use my hubbys unemployment as income even thou with me just working we qualify for a 7 as long as we wait for the 6 month look back (because of the severance pay out). I'm glad that I did not sign on the dotted line and decided to seek out other attorneys for info

[keptdigging]

That's one crazy district. Counting your tax return as income is double counting it, since it was also counted as income when you got the check it was withheld from. It's the equivalent of counting income when it is directly deposited into your bank account, and counting it again when you withdraw some of it as cash from an ATM.

That said, I've read about it enough on this forum to believe that there are districts that are that crazy.

The actual text of the law says income counts whether it's taxable or not... but this is counting the same income twice.

The worst thing is that it adds another element where the advantages go to someone who "knows" they're going bankrupt and plans it well.

[geye]

It's not double-dipping if the entire amount of taxes are subtracted from the income on schedule I. If you were to withhold the "correct" amount from your paycheck to break even, you would have more income available. So to take your overpayment and count it makes sense.

The problem would be if you received a refund from last year, and then adjusted your withholdings this year to prevent getting one next year. But if that were true, you'd have a case on why the trustee shouldn't count it.

[Jovigirl22]

It's not double-dipping if the entire amount of taxes are subtracted from the income on schedule I. If you were to withhold the "correct" amount from your paycheck to break even, you would have more income available. So to take your overpayment and count it makes sense.

The problem would be if you received a refund from last year, and then adjusted your withholdings this year to prevent getting one next year. But if that were true, you'd have a case on why the trustee shouldn't count it.

We always claimed single zero on our W4s, which helped us pay larger debts at one time in the spring, but this year, it became obvious that we needed the money in each paycheck, not letting uncle sam hold it for us, so as of Jan 1, 2010, we changed our withholdings. So, to be penalized for last years refund that received in March is not right. Yes, a $10,000 tax check is a LOT of money, but it was all spent by transfering into the checking acct to pay bills. I understand that the trustees are entitled to next years tax refund, if there is one, and we are completely OK with that, but this waiting......UGH!