Using American Express As An Authorized User Before Filing

[Rnw124]

Hello all!

First, I just want to thank the BK Forum community and moderators for this fantastic site. This is my first bankruptcy and the wealth of information is amazing - thank you!

Now to my situation and question.

I've decided to file for chapter 7 a few weeks ago. I have been in communication with a lawyer for a couple days and officially retained him this morning (2/27). I am currently living with my girlfriend in her apartment. She has an American Express account and had me on as an Authorized User. The idea was, for me to buy all the household items every month ie, groceries, entertainment, dog food, etc. She would pay the rent and utilities and I paid her for my portion of the Amex. My attorney said to get off the Amex asap because we don't want to list it in the filing.

What are the ramifications to me or my girlfriend if the court/trustee finds out about my Amex AU usage? I'm especially concerned because the last check I wrote her, on 2/8, was in the amount of $1,200 to cover my portion of the Amex. And the month before that was something like $800. The trustee will definitely notice those checks on my bank statements, right? What will they think or ask me? The God's honest truth is that those were all reasonable expenses, but I'm reading a lot about paying back loans to friends and family before filing for BK to be a big No-No. Do I need to worry about anything with this?

Thanks in advance.

[leonel9]

The transfers to your girlfriend are more of a concern (I think) than being listed as an authorized user. Assuming you are following your attorney's advice and removing yourself as AU, have you discussed the impact of the transfers?

I'm not an attorney, but I would tell the truth. Can you provide documentation that although she received the transfers, American Express was the true beneficiary? I would provide documentation that shows the transfers were for items you charged (evidenced by AMEX statements), then funds xfered to your GF, and then she used the funds to pay AMEX (maybe also via AMEX statements or her bank statements). I would also wait 90 days from the last transfer before filing.

I'd ask your attorney about the chance this argument will succeed, while being prepared to have the transfers undone.

[Rnw124]

The transfers to your girlfriend are more of a concern (I think) than being listed as an authorized user. Assuming you are following your attorney's advice and removing yourself as AU, have you discussed the impact of the transfers?

I'm not an attorney, but I would tell the truth. Can you provide documentation that although she received the transfers, American Express was the true beneficiary? I would provide documentation that shows the transfers were for items you charged (evidenced by AMEX statements), then funds xfered to your GF, and then she used the funds to pay AMEX (maybe also via AMEX statements or her bank statements). I would also wait 90 days from the last transfer before filing.

I'd ask your attorney about the chance this argument will succeed, while being prepared to have the transfers undone.

The checks I wrote have AMEX written in the memo space. I can print out all the charges associated with my card. If push came to shove, I can argue that these are living expenses - I'm not trying to fool anyone here. But the perception is what I'm concerned about. There's no changing anything at this point I guess. I was hoping for a super smooth filing.

[leonel9]

It's possible that this is easily justified and may not be an issue. Let us know what your attorney says.

[LadyInTheRed]

I have some thoughts that you may want to discuss with your attorney.

I don't think your girlfriend is an insider. If she is not, then you can solve the problem by stopping payments to her, making cash payments instead of using the credit card and waiting 90 days from the last payment to file BK.

A payment is not considered a preference if it is made in the ordinary course of the business or financial affairs of the debtor and the creditor. It seems to me that the payments you made are in the ordinary course of your and your girlfriend's financial affairs.

It could be argued that the payments are basically rent. Payments made for a contemporaneous exchange of value are not preference payments. Perhaps your girlfriend allowing you to stay in the apartment is what is being exchanged for your payments.

[Rnw124]

I have some thoughts that you may want to discuss with your attorney.

I don't think your girlfriend is an insider. If she is not, then you can solve the problem by stopping payments to her, making cash payments instead of using the credit card and waiting 90 days from the last payment to file BK.

A payment is not considered a preference if it is made in the ordinary course of the business or financial affairs of the debtor and the creditor. It seems to me that the payments you made are in the ordinary course of your and your girlfriend's financial affairs.

It could be argued that the payments are basically rent. Payments made for a contemporaneous exchange of value are not preference payments. Perhaps your girlfriend allowing you to stay in the apartment is what is being exchanged for your payments.

Yes, the payments made to her are expenses that I have incurred in exchange for me staying in her apartment. Per my atty's advice, we have removed my AU account - my card can't be used anymore and I'm hoping Amex will remove itself from my credit report. I don't want Amex associating my BK with my SSN(which I had to give to become an AU).

I am now planning on writing her checks for my share and specifically marking them rent, cable, electric, gas, etc etc - including groceries and entertainment.

What are your thoughts about Amex finding out about my BK? Ideally, once this is all over, I'd like to get back on as an AU. It could be a powerful tool to help rebuild my credit.

[LadyInTheRed]

My AmX is actually the one card that survived my BK since there was no balance at the time I filed. I suspect they will allow you to become an AU again, but can't say for sure.

The past AmX reporting will probably still appear on your credit report, but that is not what will determine whether they find out about your BK.