General Question.

[desperate&broke]

I plan on filing a Chapter 7 (eventually). I am right now gathering as much info from this board as possible. I have made contact with 3 attorneys to do the initial "free consultations".
I have noticed that advise is given to stop paying the cc's. I am not behind on many (I have at least 9). I would say I am one month behind on possibly 3 or 4 of the cards. Is there a reason why the advise is given to stop paying?

[JollyGG]

For a number of reasons.

First many people who are filing can't afford to stop charging to their cards until they stop paying on them.

Secondly, if the debt will be discharged in bankruptcy you are wasting whatever money you send them.

Lastly, how can you qualify for a chapter seven if you have enough disposable income to keep current on all of your payments?

[HHM]

As a practical, financial matter, there is no point to continue to pay if you are going to file...you are throwing good money after bad. Keep in mind, if you are contemplating filing BK 7, that means you are in difficult financial trouble; so odds are, every dollar counts. Thus, why continue to pay creditors when that money is better spent on rent, food, insurance, etc? (or to help pay your attorney).

[desperate&broke]

With my situation I have enough to pay the creditors but because I am paying them I am in need of using the cards, therefore higher balances which in turn means higher monthly minimum due and the cycle continues month-to-month. So, if in my situation, I stop paying the cards, I can actually live on what I make so long as I am not paying my cards.

I just thought there was other reasons that's all.

[HHM]

Nope, not really.

The advice is purely practical advice.

[Boscoe]

The other legitimate financial reason to continue to pay on your cards is that it definitely helps in speeding up the rebuilding your credit process after you get the discharge.

If you remain current up until 30 days before you file, the creditor can only report "Included in Bankruptcy" on your credit report, and not further damage your credit with notations of late payments and/or charge offs. Generally, the more negative items on your credit report, the lower your credit score.

But, if you cannot make all the payments due to financial constraints, the need to save $ to pay the attorney, etc, that is another story.

However, if you have the $$ to do it and if some of that money will only go back to the trustee after you file, then you probably should consider to continue to pay up until 30 days prior to filing to keep the late payments off of your credit report.

[desperate&broke]

The other legitimate financial reason to continue to pay on your cards is that it definitely helps in speeding up the rebuilding your credit process after you get the discharge.

If you remain current up until 30 days before you file, the creditor can only report "Included in Bankruptcy" on your credit report, and not further damage your credit with notations of late payments and/or charge offs. Generally, the more negative items on your credit report, the lower your credit score.

But, if you cannot make all the payments due to financial constraints, the need to save $ to pay the attorney, etc, that is another story.

However, if you have the $$ to do it and if some of that money will only go back to the trustee after you file, then you probably should consider to continue to pay up until 30 days prior to filing to keep the late payments off of your credit report.

Good advise!

Thanks!!!

[RickInMich]

However, if you have the $$ to do it and if some of that money will only go back to the trustee after you file, then you probably should consider to continue to pay up until 30 days prior to filing to keep the late payments off of your credit report.

Boscoe,

I was wondering, what do you mean "if some of that money will only go back to the trustee"?

Rick

[magyar123]

Paying anything towards the credit cards that you intend to file on doesn't make sense. A bankruptcy entry by any creditor is a "black mark" against you - no matter if the amount is $1000 or whatever.

[Boscoe]

But if you add "past due" to that, the black mark is worse. Try it both ways, and see who has the better credit score.


Rick - to answer YOUR question, and this does not apply to most people, if you are going to have assets that you cannot exempt, that money goes back to the trustee to remit to the creditors. If the trustee is going to take the money anyway, why not keep paying the creditors up 'til the filing?

[HHM]

It generally takes about 2 years for your credit to recover FULLY after BK regardless of how good it was going in to BK; and guess what entries drop off after two years..."Late Payments". In the grand scheme of things, not paying your unsecured creditors before BK really doesn't matter, vis-a-vis your credit report, since those negative marks drop at or about the time your credit is nearly recovered anyway.

Also too, if you filed BK 7, you really SHOULD NOT be making any major purchases post BK that would require good credit. You should never ever make a bad financial decision (i.e. getting a crappy interest rate on a loan) for the sake of helping improve your credit. Granted, if you "need" a car, you should buy one, but otherwise, making major purchases after BK 7 BEFORE your credit is recovered puts you BACK on the financial tight-rope.

[SinkingFast]

Boscoe,

I was wondering, what do you mean "if some of that money will only go back to the trustee"?

Rick

Any payments to Unsecured Creditors in excess of $600, total,........ Line of Credit by Line of Credit,............ Made within 90 days prior to filing BK,.............. The Trustee can go back those Creditors and get those monies back.

While it's mainly administrative, it can really bog down the Closing of your BK. You can still be Discharged on time. But the Trustee will have to go after the funds. Notify all your Creditors there's money to be had. Wait for Claims. Pay the Claims. Then perform a Final Audit of your BK.

[B12]

My small business is affording me enough cash to live on now.
Without credit card and HELOC payments, I am fine. I plan on never having a credit card ever again. I will never again buy something without saving the money for it. It is a lifestyle change and it feels great!

I definitely recommend stopping paying the credit cards. As I said before, I cannot wait until my credit rating is ZERO. My score still hovers around 750, utterly ridiculous. It is in no way indicative of my ability to pay.

The lenders in this nation need to get back to manual underwriting. The computer spitting out FICO scores does not work.

[showboat]

One of the reasons my 341 meeting was continued is because the trustee is looking into payments I made to an attorny from Discover card who had gotten a judgement. These were installment payments of $250.00 per month ordered by the court. Had I been thinking, I would not have made the last one, so it would not have totaled more than $600.00.
Kathy

[Boscoe]

It generally takes about 2 years for your credit to recover FULLY after BK regardless of how good it was going in to BK; and guess what entries drop off after two years..."Late Payments". In the grand scheme of things, not paying your unsecured creditors before BK really doesn't matter, vis-a-vis your credit report, since those negative marks drop at or about the time your credit is nearly recovered anyway.

____________________

HHM: Regarding your comments above, do you have personal experience that late payments drop off after 2 years? If that is the case, why do they always say that adverse info stays for 7? It would be great if this is true, but I have never seen this said anywhere else.

Can you tell us more?

Thanks