Questionable Basis for Income statements on credit apps?

[faceforward]

Good Evening,
I'm filing chapter 7 in a few weeks and I have some concerns regarding potential AP's.
I have 35K on a BoA card that is several years old, 7K on a Discover Card that is one year old (13 months) and 10K on a citi card that is one year old. I used 112K as an annual income figure on CC apps and Credit line increase requests from 2006 thru the CC apps for the above mentioned cards. All payments were current on all cards until 04/2010. I shuffled balanced around in 08/09 when i applied for the new cards. My concern is this: My tax returns show my annual income in the 40K to 50K range during the previous two years. I built a large house myself (literally) on property that I owned during these years. my intent in building the structure was to make money. I did complete the house and I still own it, but due to market conditions it is worth 100K+ less that I expected when I was building it. -I never realized income that I gave myself credit for on my apps, even though I believe I had a rational reason to think that the figures reflected an accurate representation of the fruit of my labor at the time. Do I have cause for concern? I plan to file pro se and have no funds to hire a lawyer to defend against an AP. Would this situation constitute fraud on my part?

[ccsjoe]

I don't think you have any cause for concern on that basis. Most commonly AP's are filed when creditors object to discharging all of your debt due to excessive or luxurious recent usage, say 90 days or 6 months prior to filing.

[tcreegan]

Hi faceforward, I agree with cssjoe, probably nothing to worry about. The problems come in with charges within 90 days of filing, and then it seems like only the large (multi hundred) charges get challenged. Discover, BOA, Citi are huge corporations, the odds they are going to pull your app and compare it w/ your tax returns on debts that are over a year old is about zilch.

Good luck w/ your filing,

Tom in Colo

ps: did anyone recommend the NOLO book? Apparently a great resource for pro-se filers. www.nolo.com

[faceforward]

Tom- I purchased the book and download last week from NOLO. It has been an excellent resource, strait-forward and detailed. The more I learn, the less I worry. Thank you both for responding.

[tobee43]

i echo tom and joe on this one...actually understand your tax returns may help you....ours did...as it showed the decline in income.....actually, although not asked by the courts we insisted on submitting 3 years to show how badly our income had been affected.

it's simple mathamatics...if you in 2006 were making over 100k and now your income for the past two years has dropped in half...it helps your position with the court. they see a severe loss of income...of course illness and job loss are two main reasons one goes bankrupt.

[faceforward]

tobee43- My concern was more that in a year where my tax return showed an AGI of 45K, I reported my "income" on credit card applications and credit line increase requests as 112,500.00. I was acting as my own general contractor in the construction of the house, and "paying" myself from the ever increasing equity in said property. As I have yet to sell the property (tried hard, but...) none of the profit from the project was ever realized. Thus it seems that I have overstated my income by 70K when the amount on the apps is compared to the tax return from the year(s) in which the apps were submitted.

[tobee43]

tobee43- My concern was more that in a year where my tax return showed an AGI of 45K, I reported my "income" on credit card applications and credit line increase requests as 112,500.00. I was acting as my own general contractor in the construction of the house, and "paying" myself from the ever increasing equity in said property. As I have yet to sell the property (tried hard, but...) none of the profit from the project was ever realized. Thus it seems that I have overstated my income by 70K when the amount on the apps is compared to the tax return from the year(s) in which the apps were submitted.

ok..yes, i can see that this can be a bit on the sticky side of the curb...however, manageable.

if asked...and i doubt it, it was a "projected" income and besides....they granted the credit!!!!! sooooooooo....if they did that, apparently that felt what they verified what THEY deemed necessary for you to have met their criteria for lending you that amount....you can't be responsible for THEIR decision???

they would have to prove fraud...it's a difficult burden to prove.

[ccsjoe]

tobee43- My concern was more that in a year where my tax return showed an AGI of 45K, I reported my "income" on credit card applications and credit line increase requests as 112,500.00. I was acting as my own general contractor in the construction of the house, and "paying" myself from the ever increasing equity in said property. As I have yet to sell the property (tried hard, but...) none of the profit from the project was ever realized. Thus it seems that I have overstated my income by 70K when the amount on the apps is compared to the tax return from the year(s) in which the apps were submitted.

faceforward, think about it this way. All the people that got "liar loans" (stated income, stated assets only) to get mortgages, lines of credit, etc, that lied on their applications would be a much easier target to sue for fraud than credit card applications...and yet, it's not happening. I would not worry, the risk in my opinion is zero.

[keptdigging]

Fraud requires specific facts, and they have the burden of proof. You have lots of defenses, they know it, and thus are very unlikely to incur the expense of filing an AP and the risk of being liable for your legal costs if they lose. Your rationale here is one defense, another is that they have to prove they relied on your statement in granting credit (of course they didn't--otherwise they'd have verified the income.)

Moreover you don't fit a pattern where they're likely to prevail--the charges are well aged.

====

Bigger picture: Sorry about your timing on building the house. Must have been quite an effort.

[chrisdfw]

Plus they have to prove they relied on the mis-statements.

There are really two elements of the "fraud"
1. You knowlingly made false statements (which is at issue, since you believed you would make that much)
2. They relied on it, in a lot of cases creditors used only fico scores in these decisions, so you can challenge that they relied
on your income in granting the credit. This has been successfully used as a defense for these types of cases.

Really they probably won't even notice, really they are only looking for a big run up in charges on the way to bankruptcy, and
even then it appears it must be pretty blatant.

[tcreegan]

common vs uncommon

Hi all,

A guy I used to work with always said "common things occur commonly, uncommon things occur uncommonly." Simple but true.

A large corporation that writes off debt every day investigating year old debt in one of the thousands of BKs where they are a creditor, requesting tax returns not normally available to them and cross checking the original credit application (which they probably can't even find)...this is about as common as winning the lottery, the Cubs wining the World Series, and Congress cutting their pay all on the same day.

What commonly happens? The credit card companies get notice of the BK, write off the debt and it becomes one blip if information that goes into their risk analysis equations. Happens every business day, as regular as the sun coming up in the east and setting in the west.

Peace all, guess I am waxing poetic today.....

Tom in Colo

[faceforward]

Thank you, gentlemen, for your responses to my posts. As I gain more first hand experience myself, I'll seek to contribute to the forums in the same manner.
-Faceforward

[tobee43]

well....then your very welcome...however, some of us are actually ....gentlewomen

[faceforward]

terribly sorry. (extracting foot from mouth) it's hard to tell with the usernames.

[tobee43]

it most certainly is...but at one point i had to draw the line when someone suggested that they may be moving in with my wife and me....and while my husband may have enjoyed the fleeting thought of that suggestion for a mano sec....i at that point had to distinguish myself as female. LOL!!