Q about Cash Savings

[sunflwrgrl13]

Hi, I'm not sure if I'm posting this in the right forum. If not, please move it to the right one.

I've consulted with 2 lawyers, and it seems that we will qualify for Ch.7. We will be including our house in the BK, so will not need the home equity exemption. To give some further background info, here's our situation.

- My husband brings in approx. $2500/mo (net), and I'm currently on unemployment (~$1500/mo).
- Both lawyers have suggested to not pay the mortgage since we do not plan on keeping it. At the mo, with my UI, we can afford the payment though. After my UI extension ends in a few months, we won't be able to afford it.
- One lawyer also suggested to not pay any of our other unsecured debt (mainly CCs), while the other lawyer said we should pay some type of min. payment to them.
-If we do not pay the mortgage, nor any min. payments on the unsecured debt, this would actually leave us an excess of probably around $3k/mo.
- Given that we need to make sure I have no income for the previous 6mo (to ensure we qualify for Ch.7), we aren't going to file until Nov.
- We currently have approx. $7k in savings that we haven't needed to tap into yet.

Given the above, I have 2 questions:
1) Is there an advantage/disadvantage to making at least some kind of min. payment on the unsecured debts? We can afford to make the payments, so would it look negatively if we didn't make them?

2) If we have the $3k in excess every month, we could conceivably have $13k in savings in Nov. when we file. My UI will end in Nov (as far as I'm aware), so we would be adding about $1500/mo to our savings after Nov (thanks to not paying the mortgage). Should we have concerns about having that much in savings?

If I just cashed my UI check instead of depositing it, then we wouldn't appear to have that much in savings..but I don't want that to be perceived as hiding assets (even though I know UI can't be counted as income).

The lawyer didn't seem too concerned about any excess. He just said something along the lines of using it for living expenses. But we don't have enough living expenses to make up that kind of difference! Unless we just arbitrarily start spending more $$ on food, or going out to eat, or possibly attire I could use for interviewing, or changing to a more expensive cell phone plan/cable bill. I would just be concerned that us all of a sudden spending more $$ on food or other expenses (that we have reduced in the last 6mo) wouldn't look too good.

I don't know if I'm making a mountain of a molehill or if I should have legit concerns. Should we save the full amount (including my UI), only save partial funds (and cash my UI), or start spending more on stuff we don't really need? Any advice would be most welcome.

[daylate]

Not to be considered legal advice, but I''d check on the cash exemptions you are entitled to take in your state. I believe if your state allows a wild card you can apply in addition to your cash exemption. Other than that, I think you lose any excess cash. If that is the case what I have read suggests medical/dental expenditures, massive food buying trips, pay all your monthly bills before filing. I have also read that just writing checks isn't enough, they actually have to clear-so maybe withdrawing cash & using money orders to pay those "last minute" expenses is the way to go. Also, federal exemption and I'm guessing a lot of states also allow you to exempt 75% of weekly wages. As always there is no one answer as each district apparently sets and interprets laws differently. Make sure you get an attorney who appears to really understand the whole situation and who you have faith in. Good luck.

[lvasilieva]

Have you ever considered settling with your creditors instead of bancruptcy? Save excess of your money in a retirement account and stop paying the bills. After you stop paying them for 4-6 months they will be more open to settle, from my experience - at 25-40% depending on the creditor. Just don't go past 6 months, it will get harder after that. Why are you so sure you won't get the job by November?

[sunflwrgrl13]

lvasilieva, I'm pretty much 100% certain I will have no job by the end of my unemployment. I'm an engineer and there just no jobs in my field in our present location. And I can't apply for jobs elsewhere because the house is an anchor around our neck. We've had our house on the market for about 100days, but we are in a short sale situation since we owe more than it's worth. Also we don't want to be slapped with a deficiency judgment, nor do we want a 1099c sent to the IRS and have to pay taxes on any forgiven debt...hence the bankruptcy. We want the house to be gone asap so we can move (to where I can find employment).

Since we aren't keeping the house equity, from what I understand we could have up to $22k in cash that the trustee can't take (assuming we don't use the wildcard exemption for other categories). However, I was wondering how it would be perceived that we are setting that much money aside every month by not paying our bills? Would the trustee take into account though, that once my UI ends, and if we actually paid all the bills, we would be without any cash savings whatsoever in a few short months? We're actually trying to be somewhat proactive by filing earlier and still manage to have some assets leftover after being discharged.

[tcreegan]

Hello sunflwrgrl13,

1) Is there an advantage/disadvantage to making at least some kind of min. payment on the unsecured debts? We can afford to make the payments, so would it look negatively if we didn't make them?

Not making the min. payment only factors in when you have charged some big ticket items knowing you couldn't pay them off. The creditor can object and the debt might not be discharged. For low amounts of normal expenses, it is not worth the effort. You are filing BK, so not paying is normal and keeping current is somewhat dubious. (If you can pay, why are you filing BK sort of questions)

2) ....Should we have concerns about having that much in savings?

Yes.....but what state are you in? Have you checked the exemption amounts for your state? Most states do not allow the federal exemptions, but if they do and you are not using the homestead exemption you can protect more cash on hand.

If I just cashed my UI check instead of depositing it, then we wouldn't appear to have that much in savings..but I don't want that to be perceived as hiding assets (even though I know UI can't be counted as income).

ack ! you WILL be perceived as hiding assets b/c you are.
Do you know that your state doesn't include UI as income? Feds don't but some states do

using it for living expenses

Use it for living expenses but not living it up expenses. Do NOT pay off a single creditor, do NOT give any $$ to family members,
Got any medical/dental/vision work that needs to be done? 1st/last/sec dep. on a new place to live, that work on the car you have been putting off

Good luck with all of this,

Tom in Colo

[keepmine]

Paying debt that will eventually be discharged in bk is throwing money down a rathole. If you're current or not has no bearing on your bk.
Most of us pinched pennies so long before filing we had no idea what a reasonable lifestyle was like.
$22K is a pretty generous exemption. For any excess, I'd suggest trips to the dentist for the entire family. Eye exams and new glasses/contacts. Any vechicle maintence or repirs you've put off. Professional attire for interviews/new job. Buy whatever food you want as opposed to ramen noodles. Fill up tye gas tank as opposed to $5 or $10 at a time. Put you mind to it and I'm sure you can think of a million uses for those funds.
BTW, don't woryy about a deficiency judgment. Those will take time and, they are unsecured debt and will be discharged just like your cc debt.

[lvasilieva]

lAlso we don't want to be slapped with a deficiency judgment, nor do we want a 1099c sent to the IRS and have to pay taxes on any forgiven debt...hence the bankruptcy.

You are right about IRS, this was the reason I abandoned the idea myself. We've calculated that even if the bancruptcy hurts my employability at full $$ for another 3 years, I'd still be better off compared to withdrawing money from IRA and paying 10% penalty and taxes on debt forgiveness.

You are lucky to be in the field that requires close to perfect credit.