Hoping to file chapter 7 bankruptcy

[Nicole80]

Hello!

I am looking to file Chapter 7 bankruptcy, but I have a lot of possible dilemmas. 1. I recently took out a personal loan with NFCU for $30,000. I currently have 3 credit cards with them with high balances and a car loan. On my application instated my projected income. I had a second job that stopped paying me abruptly in August 2022 due to losing a contract. They advised me that they were starting a new contract and we would start back in May and I would receive back pay. So I was expecting to pay the loan off with the back pay. They are now stating that contract fell through so I won’t be starting back or getting the back pay. The personal loan was to help me stay afloat until the contract started. Now I am in more debt and need to file. I am scared that NFCU will file a AP against me for overstating my income. The income I stated is the income I made in 2021 and a little over what I made in 2020 after my second income stopped. Should I be worried? I have been a member with NFCU for over 3 years. Never missed any payments or anything. Please help.

[justbroke]

Another welcome to BKForum!

Whether or not a creditor would file an AP is too fact specific. In your case, I would hope that you made some payments towards that $30K loan. If you did not then it would give the appearance as if you never intended to pay the loan which is something that could cause NFCU to file an AP. In all my years here on BKForum, I don't recall any time where NFCU has filed an AP against a member in a bankruptcy. They are usually pretty good at validating income (or having your past income validation on file) when making loans over $20K or so (don't quote me)--certainly on credit cards over $25K so I would assume loans are treated equally.

I'm assuming that you obtained the loan in August-September 2022 and have been making payments? If so, I don't see this as an "eve of bankruptcy" loan where you never had an intention to not pay (yes a double-negative).

It's time to find 3-5 local attorneys and seek a free consultation.

[Nicole80]

Thank you! Yes, I have been making payments and they did not ask for proof of income on any of my loans or credit cards. I plan to continue to pay them until I officially file. I really hate to lose my relationship with them, but losing 2 sources of income is killing me right now. I just don’t want to be accused of fraud for overstating income on my application when that is what I projected to be making.

[justbroke]

For NFCU, they will keep you as a member but you will no longer be able to enjoy credit products for life. If at some time you do want to use their credit products, they require repayment in full. I don't think it is worth paying them back in full because there are other large credit unions with similar lending practices (such as PenFed).

The problem you may face is with the car. Credit unions "cross-collateralize" the car loan with your credit products (credit cards and unsecured personal loans). An attorney will help you navigate that issue and convince NFCU to release the cross-collateralization of the car with the loans and keep the car.

Another thing you could potentially do is to obtain a so-called 722 Redemption loan to redeem (purchase) the car from NFCU during the bankruptcy pendancy. Since you haven't defaulted on any credit terms you would likely qualify for such a loan. The rates are horrendous, but you may also be able to purchase the car for its current value, rather than what you owe.

[Nicole80]

Great! Thank you for that information. I have a consultation with a BK lawyer tomorrow. Also, I have 3 cars free and clear. 1 is worth $1,100 the other is $3,111 and the third is a classic car without a motor. It is a project car for my husband. I have not been able to find the value for it yet. I was reading online that if they are nonexempt property that I can negotiate with the Trustee to keep them by paying for them. Have you heard of anyone successfully doing this?

[justbroke]

People have successfully purchased non-exempt property from the Chapter 7 Trustee. It just depends whether your Trustee is the snarly type. By snarly I mean to say the Trustee that would say "yes, you can purchase the vehicle back... just go to the auction and make a successful bid." (Yes, there were/are some Chapter 7 Trustees in Florida that have said that!)

Are you both filing together? If you own a home then you may not have a big chunk of "unused" homestead exemption to cover all the cars. I can't be more specific, but your vehicle exemptions usually only cover one vehicle and ownership will matter (how the vehicle is titled).

Let's say Ohio's BK exemption is $4,000 in one vehicle. Let's say you also filed together. Let's say that you both have title to a single vehicle with $7,000 in equity. Then you could cover that because the exemption is per debtor, which means it is doubled when filing together. So $8,000 clearly covers the one car. If you have a second or third vehicle, well, you each just used up the vehicle exemption on a single vehicle.

Now let's say your other two vehicles are worth $1,000 and $3,000 each. You may find the Trustee amendable to purchasing them for some lesser value (since it saves the Trustee from sending to auction and paying an auction fee). I can't say what the "offer" should be, but it's certainly something less than $1,000 and $3,000. Plus realize that this money has to come from somewhere. Do you have cash somewhere that is protected (exempt)?

These are just questions. You need not answer them here, but I do wonder if you'll be filing a joint bankruptcy?

[Nicole80]

No, we are not filing together. I am just filing. The car and home are in my name. My parents said they would purchase the cars if the price is reasonable.

[justbroke]

No, we are not filing together. I am just filing. The car and home are in my name. My parents said they would purchase the cars if the price is reasonable.

Just don't sell those vehicles or change the ownership status of them. That would complicate things (insider dealing). Since you own the three cars, you'll need to exempt one with your vehicle exemption. You "may" be able to use part of your homestead exemption (the unused homestead exemption) to cover some or all of the value of the other vehicles that are titled solely in your name. This depends on factors that an attorney would need to examine including whether the vehicles are jointly titled (e.g., TBE).

I think you'll be fine, but a local attorney will be able to provide more clear and concrete answers.

[Nicole80]

Thank you so much! I will keep you posted.

[Nicole80]

I forgot to mention that I have a small business that is no longer making money. We had to sell our tow truck last month because the payments were too much. We ended up getting $15,000 back from the sell. What can I legally spend that on? We sold it to Carmax so it wasn’t a friend or family member.

[justbroke]

This is getting into the nitty gritty, but how was your business organized? Was it a sole proprietorship, partnership, LLC, or corporation? Generally, let's just say you're a sole prop. If you sold it, CARMAX paid off the loan, and had $15K left, then I think the proceeds are yours. If you had a different type of business organization, it could become complicated when you liquidate assets and don't pay other business creditors.

If these are your personal funds, and don't belong to the business, then no Trustee is going to rake you over the coals for living expenses (food, safety, housing, transportation, etc.).

That's just my thoughts on this, so don't take it as any advice.

[Nicole80]

It is a LLC in name, but it’s filed with my personal taxes and not as a corporation. Does that help?

[justbroke]

Just ask during your bankruptcy attorney consultations. It reads as if it's a separate legal entity. I was only worried about creditors of the LLC. I have 3 LLCs and just shut down one of them. Issues with an LLC liquidating assets and dealing with creditors is a totally separate thing from the personal bankruptcy. Make sure you mention the LLC because any personal guarantees could be discharged with the bankruptcy. Whether or not the LLC has creditors is a totally different issue or a complete non-issue if there are no creditors.

[Nicole80]

Ok. This situation is getting crazier by the minute. lol. We do have 3 business credit cards that that have balances and my husband is the guarantor on them. He is not filing so I think that is another problem for me. This is too much. I did not even think about the issue with selling the truck in the LLC’s name. We were just trying to get rid of that bill.

[justbroke]

Just treat the business separately because it is a separate entity. Since you have not guaranteed any of the business debt I don't think it's an issue for you. I was just really saying that if you did have any guarantees on business debt, then you should include those guarantees and they will be discharged, as to you personally. I would still ask my attorney about it, just to make sure that your bankruptcy will protect you personally from any of the business debt.