Should you stop paying on credit cards before you file?

[JuniperBanksuck]

We just visited a bankruptcy lawyer and we are definitely going to file for Chapter 7 Bankruptcy, but I have a question that I hope someone here can answer. The lawyer told us that we should stop paying on our credit cards if we are sure we are going to file. Is this good advice? Any input on this would be greatly appreciated.

[BKTango]

It depends really on your situation, some people pay on them right up until the day they file, while most, since they are filing bankruptcy to relieve themselves of debt may stop paying on them long before. Personally speaking, we stopped paying on ours about a year and a half before we even thought of bk. Your lawyer if giving you sound advice though, if you are planning to file in the very near future why keep throwing money away every month paying on a debt you will be discharging. It would be best to start using that money on regular living expenses so you will have a better idea of what your actual non-credit having living expenses are when it comes time to filling out your expense forms, and also you will need to learn to live on cash only. Might as well start that now.

[tofargone]

If you are going to file yes. basically you are throwing good money after bad if you keep paying on them.

The downside is that if you have to wait to file you will start getting collection calls after a while.

Trust your lawyer, thats what you pay him for.

Good luck

[SinkingFast]

Kinda depends on how much your monthly minimums are as to what you'd do.

You can't really pay some and not others. That opens the door to Creditors crying fowl and filing an Objection later on.

The rule is, you have to disclose all payments to Creditors that total $600 or more within 90 days prior to filing. Any payments to Insiders, family, friends, close business associates, within a year prior to filing. Both of those payments are considered "Preferential Payments" and the Trustee can go back to the Creditors/family/friends/business associates and get the monies back.

As an example, you pay Chase $250/mo for May, June, and July. File late July, early August, you'd have to disclose you paid Chase $750 within 90 days prior to filing. Say you repaid Mom $1K that she loaned you back in February. You'd have to disclose that too. And the Trustee can go back to Chase for the $750 and Mom for the $1K and get the money back.

The deal with Preferential Payments as one attny explained it to us is they can bog down your BK filing time. Drag your case out for a while before you can get Closed. The Trustee has to collect up the monies, notify all your Creditors there's money available, wait for Claims, then assign every one who files a Claim a piece of your pie, and perform a final accounting of your Case before the Trustee can sign off and Close your BK.

Just for a rough guesstimate, add approx 60 days for each step. 2 months for the Trustee to get money back from Creditors/Insiders. 2 months to notify Creditors there's money available from your BK Estate and hear back from them. 2 months to assign Claims and pay out money. Another 2 months to perform the Final Audit and Close your case. Preferential Payments just tie you up in BK much longer.

[twuoo]

sinkingfast: Thank you for your insightful response to this post. I had written another post with a similiar question about selectively paying cc mins.

I paid on the mins of the cc that I had last used, but did not pay the mins of the cc that I haven't used for 2 months or more. Was this a mistake?! Is this going to tie me up?

Should I go ahead and pay on the mins on even the cc that I haven't used in a while so that it doesn't look preferential. A couple of the mins are late now and I've been assessed their nice late fees.

If I pay all my mins, I won't have enough cash to live on for the month. I was making up the deficit by putting stuff on the cc like gas and food etc in the prior months.

I won't be filing until Sept/Oct.

Any suggestions would be greatly appreciated.

[DivorceRuinedMe]

sinkingfast: Thank you for your insightful response to this post. I had written another post with a similiar question about selectively paying cc mins.

I paid on the mins of the cc that I had last used, but did not pay the mins of the cc that I haven't used for 2 months or more. Was this a mistake?! Is this going to tie me up?

Should I go ahead and pay on the mins on even the cc that I haven't used in a while so that it doesn't look preferential. A couple of the mins are late now and I've been assessed their nice late fees.

If I pay all my mins, I won't have enough cash to live on for the month. I was making up the deficit by putting stuff on the cc like gas and food etc in the prior months.

I won't be filing until Sept/Oct.

Any suggestions would be greatly appreciated.

I think preferential payments can only be shown if it's in the past 90 days. So, if you are waiting till Sept/Oct, then it shouldn't be a problem. Just don't pay ANYONE anymore.

See this great article: http://www.expertlaw.com/library/ban...e_defense.html

[twuoo]

One of my cc shows me my transunion credit score. As of this month, it is 701. It'll be interesting to see what it falls to as I'll be missing quite a few payments this month.

Also, because of this cc, I learned an interesting trick. If my minimum payment was say XX.XX, I'd just pay rounded off to the nearest dollar. So really, if the min was say $99.01, I'd pay $100.00.

The cc reports as "more than minimum paid". So by paying that extra few cents, I was able to raise/keep my credit score decent, in spite of my high debt.

[DayOne]

So from the day that you decide to stop making payments, should you (I) wait three months to file to smooth over these preferential issues?

thanks

[wednesday]

So from the day that you decide to stop making payments, should you (I) wait three months to file to smooth over these preferential issues?

If you were paying all the cards about the same, it wouldn't matter. OTOH, it wouldn't hurt to not pay for a while, and stash as much cash under the mattress as you can before filing BK.

[DayOne]

Pretty consistently the minimums. I did do some pretty big moving of money between cards (off my wifes on to mine) in search of the almighty teaser rate.

I wondered if that would come up.

[CATCHMEIFYOUCAN]

Me Too

Pretty consistently the minimums. I did do some pretty big moving of money between cards (off my wifes on to mine) in search of the almighty teaser rate.

I wondered if that would come up. One never knows. (It was never mentioned in mine.

I practically was doing the same thing, moving money around through consolidation loans and transfers of one credit to pay another (Not Only did I apply and got a credit card for $10,000 before I filed, I transferred the whole balance to pay off another cc only to wipe THAT cc out in the nick of time.

Wish I hadn't wasted my money paying on the minimums THATS for sure.

Best of Luck, CMIYC

[JollyGG]

Pretty consistently the minimums. I did do some pretty big moving of money between cards (off my wifes on to mine) in search of the almighty teaser rate.

I wondered if that would come up.

We did that and now our trustee is going after one of those balance transfers as a preferential payment. Doesn't really effect us other than delaying our closing, but still something to be careful of.
Also the company we did the balance transfer to wasn't too happy and threatened to file an objection. They never followed through, lucky for us.
Try to put some distance between filing and those balance transfers if possible.

[HHM]

Some clarification on the Preferential Payment issue...generally speaking, the only time anyone cares about Preferential payments is when the debtor made a payment to an insider (i.e. family member). And I have seen trustees go after amounts as little as $500 when dealing with insider preferential payment issues.

Preferential Payments to creditors tend not to be an issue unless the differential is significant (i.e. $1000 or more, and even then, the trustee may not go to the trouble), and even then, it is not something the debtor need worry about because a preferential payment case is between the trustee and the creditor, the debtor is not involved, and as SF points out, the only downside to the debtor is that a preferential payment case drags out your BK.

The real issue is, if you KNOW, and are CERTAIN, that you will be filing BK, then you should not be making ANY payments to unsecured creditors because all you are doing is throwing good money after bad.

Although preferential payments can be an issue in an individual debtors case, the law is more designed toward corporate chapter 11 cases.

[DayOne]

Yea, not 3 months ago I got an unsecured loan from BOA for 25k. That is where most of the movement has been to. I was still in recovery mode then.

Thanks HHM. It is good to learn the preferential issue is only a time issue if it comes up.

[BKTango]

HHM is correct, We had made a preferrential payment of $1200 to a creditor one month before filing (didn't know we were filing at that time). Trustee never said a word other than to have us clarify we did pay it at the 341, but he never bothered to go after it as it really wasn't enough to be worth his time.