Advice to stop paying on CCs...Pros/Cons?

[Overmihead]

We have our first consult set up for next week and will most likely be filing a Ch7, but I want to get some input before that meeting. It seems the general rule of thumb is to stop making payments on CCs (and of course stop using them, which we have) when you know you are headed toward a BK. But DH and I are wondering how bad it looks and potential scrutiny of your case if there is no time in between not using them and not paying on them. Especially when 2 - 3K/month was being put on them to pay electric, gas, cable, basically all living expenses. Granted, sometimes there is no other option. But, hypothetically speaking (since we haven't talked to said relatives yet)....
IF relatives are willing to buy all groceries for us and fill up our gas tanks for a few months so that we can have some $$ to pay minimums (as opposed to them giving us money, which we don't want to have to explain), would this be advisable? So that we could have a few months of paying after we quit using them?
And if we do this, is there any chance the trustee will look at our bank statements and ask, "How were you paying for groceries and gas?"
AND...if he/she asks that, will our relatives get drug into the whole BK process if we say that they bought us groceries and gas?

We are thinking we probably won't file until June or July, if we can hold out that long, since the last CC use was the second week of January. If we are able to pay minimums for Feb, Mar, April, then we would only have a couple of months of non-payment before filing.
Advice?

[JEM]

I think ideally you want to make 2-3 payments on cards you recently used. However, I will say that there was 2 cards that I used and the following month (used on Nov 2nd and couldn't pay Dec) couldn't make the payment. It wasn't for anything luxury--and for less than $300 on one card and the other card for $100. It was at gas stations, or grocery stores, and paying our water bill.

I just couldn't make the payment the following month. We'll have around 6 months from last use to filing. I'm not incredibly worried about it.

[Overmihead]

>>>I think ideally you want to make 2-3 payments on cards you recently used.<<<

That's what I was thinking we should try to do. But what about if we are asked how we were paying for groceries & gas? Will they notice there are suddenly no debits for it from our account and want to know where we got the cash to buy those things? And if so, will we have to get the relatives who helped us involved in the case in any way?

[frogger]

Don't over think this........

If the choice is to keep a roof over your hear & buy groceries vs. paying the credit cards, then quit paying the cards.

If you have decided that you need to file for bk, quit paying the cards.

If you have to borrow money to live in order to pay the cards, quit paying the cards.

Provided that you have no luxury purchases or cash advances lately, I wouldn't pay another dime on the cards if I was going to file bk.

You're not going to get anyone drug into this. You have just made a smart financial decision to quit living higher than your means. That's smart, not illegal.

[HakunaMatata]

Excellent advice, Frogger!

Overmihead, you're questioning past debt and current need. BK eliminates past debt. Focus on your needs.

[SleeplessMI]

Making payments to creditors can come back to haunt you just as easily as the charges you made on the cards.

My attorney is having me document my most recent payments to my unsecured creditors. I stopped paying all seven credit cards at once, on November 1, 2009. He said that if I had paid some unsecured creditors and not others, we would have a problem with preferential payments and would have to wait longer to file. He also said I could keep paying secured debt (house, car) and priority debt (IRS, student loan) if I wanted to.

I used the money I was sending to the cards to retain him the same week I stopped paying and when the cards started calling, I just gave them his number. (Citi was horrible; within 3 days they were calling once every hour).

My last charge on a credit card was in mid-October, for groceries, pet food, etc. My attorney said it was best to wait 90 days between my last charge and my filing date. He knows the local trustees' way of doing things; it might be different in your district.

He also said that if there was any indication I had run up the charges just so I could discharge them in BK (luxury purchases, etc.), I'd have to wait a year to file. That doesn't sound like your situation. Did you buy any boats, jewelry, etc.?

My opinion is that you should bite the bullet and stop paying the sharks all at once. Use the money to retain a lawyer and send the calls to him/her.

[kornellred]

Interesting thread. If a debtor is wondering if payments to unsecured creditors should be made when the decision to file for BK is a foregone conclusion, that implies that said debtor is wondering about what to do with the money that they will have if they stop sending payments. Spend it? Save it? Pay the attorney with it? Some of each?

There is no correct answer, but if you are going to file for bankruptcy, there is no point whatsoever in making payments to creditors. You will not be doing them any favors if you continue to pay. But for goodness' sake - stop using the credit cards that you are not making the payments on. That will definitely raise some eyebrows, and this bankruptcy business calls for discretion.

[frogger]

That will definitely raise some eyebrows, and this bankruptcy business calls for discretion.

Not only does it call for discretion, it calls for you to change what you're doing when you consult an attorney or decide to file.

When you decide that you're going to file, if you continue to use those cards or credit of any kind, then you're committing FRAUD.

Perjury is a mighty big word when you talk to the trustee.......

[Overmihead]

Thank you all so much, this thread is really helping me sort things out. No, there have not been any luxury purchases...no boats, no jewelry, no fine dining... but the charges add up to quite a bit the past several months. Medical bills, dental appointments for the kids,utilities, groceries, gas, oil change. The only things on there that weren't daily living expenses were for Christmas gifts in December. Nothing big either...there might have been a couple of things between $100 - $200, but most of it was smaller stuff. The only charges over $300 in the past few months have been medical bills and having the propane tank filled.
And we are not using the cards any more, that bears repeating. We have several lines of credit open to us (cards that we paid off and cut up some time ago because we didn't want to fall into the credit card trap...and yet, here we are) and we're not about to access those and run up any more debt now that we know BK is truly our only way out from under this.
It does seem silly to get help from relatives and have them buy us groceries just to make cc payments...when we know where this is headed. But yet, we are so nervous at the prospect of suddenly not paying the cc bills and how it will look in the end. I need to have DH read this thread. He really feels strongly that we need to do whatever it takes to keep paying for a couple of months. But then, he doesn't have the benefit of all the information and advice I've gained on this site. Can't thank you all enough, and hopefully this thread helps others with the same questions.
I am very anxious to hear what the attorney has to say...and whether or not we get a good feeling about him.

[SleeplessMI]

If you haven't even retained an attorney yet, it will probably take 60+ days to get your paperwork together and get your petition filed. My lawyer said the more time that passes between my BK filing and my last charges AND payments, the better (provided that my income doesn't increase during that time frame--I need to hit the Chapter 7 slot).

You can find other threads on this board where knowledgeable people (like B/F moderators) state that it's rare for a creditor to file a lawsuit against you in the first 3-6 months after you stop paying. Even if they do, your lawyer can do things to slow the lawsuit down (motion for discovery, etc.) until you can file your petition. Once it's filed, the sharks all scatter.

Good luck--it's good that you're here educating yourself.

[Overmihead]

Thank you, Sleepless. Yes, I'm hoping that will be the case...that no one will take action against us between now and June/July. And you're right, from the many cases I've read about here, it does seem unlikely that something would happen that quickly.

[BKDefender]

Re: Advice to stop paying on CCs...Pros/Cons.

Thank you, Sleepless. Yes, I'm hoping that will be the case...that no one will take action against us between now and June/July. And you're right, from the many cases I've read about here, it does seem unlikely that something would happen that quickly.

The first thing I advise my clients to do when they decide to file bankruptcy is to stop paying all unsecured creditors to save all the money they can before we file their bankruptcy. They can pay their rent early, they can pay their car note early, they can stock up on groceries, they can pay their cell phone bill early, they can pay their utilities early, etc. Then if they have more than they can exempt in Nevada ($1k wildcard exemption, usually used for cash), they can put up to $5k/year into a Roth IRA prior to filing BK. In Nevada we can exempt a 401k/IRA/Roth IRA up to $500k. Heck, if they file during Jan-Mar then they can even fund last year's Roth IRA up to $5k/year. i.e. a married couple can take $20k in cash, fund last years Roth IRA for both of them, fund both of theirs for this year, file bankruptcy, and take the money out days later if they want. I usually advise them to leave it in there until the discharge of course. Trustee's might not like it, but one can convert non-exempt assets to exempt assets - the one gotcha to look out for is if you're converting a non-exempt 2nd vehicle you should sell it for as close to fair-market-value as possible.

--William

[MSbklawyer]

They can pay their rent early, they can pay their car note early, they can stock up on groceries, they can pay their cell phone bill early, they can pay their utilities early, etc. Then if they have more than they can exempt in Nevada ($1k wildcard exemption, usually used for cash), they can put up to $5k/year into a Roth IRA prior to filing BK. In Nevada we can exempt a 401k/IRA/Roth IRA up to $500k. Heck, if they file during Jan-Mar then they can even fund last year's Roth IRA up to $5k/year. i.e. a married couple can take $20k in cash, fund last years Roth IRA for both of them, fund both of theirs for this year, file bankruptcy, and take the money out days later if they want.--William

I should have clients like that. Mine want me to advance them $10 so they can buy gas to get to our initial meeting. Welcome to the forum, brethren.

[BKDefender]

MSBKLawyer - The 'they can' was meant to say that IF they had excess money then they could do that :-) It's a rarity that the client has this ability!

[Overmihead]

Update after consult

So I thought I'd update this thread since we've had our first attorney consultation. Feedback is welcome.
This attorney deals with his clients personally...answers his own phone, attends 341, goes over all paperwork with his clients, etc., which I think is rare and I really appreciate. (No paralegal, no secretary, etc....so very low overhead)
He looked at our income vs. family size and said we wouldn't even discuss a Ch.13, that we were under the median and a definite 7 (personal).
He seemed knowledgeable about the bankruptcy judge that would be presiding over our case (said he is very pro-consumer). He has over 10 years of handling BK cases and has financial/small business background. At the end of the meeting (and btw, he met with us for an hour and 15 minutes!), he quoted us 1,500 + 299 filing fee, and said he could begin work with a retainer of 750. He didn't mention the credit counseling course.
As far as our part ownership of a small business (S corp), he indicated that a trustee would not see anything they could liquidate (it is a service company, so there are no products, just some used computers, software, and desks). We are very concerned about money the company has sitting in the bank at time of filing, because if they reached in and took any it would put an end to the business. There is usually just enough in there to cover a couple months of payroll and expenses. So we really were hoping to get a firm, confident response from an attorney that a trustee is not going to do that and end any chance we have of moving forward. (The business is our sole source of income.) DH didn't feel reassured enough on this front. I know that no attorney can give a guarantee on what a trustee will or will not do, but this attorney said they (trustees) are not out to put companies/small business owners out of business, but didn't go so far as to say he felt certain that wouldn't happen. He didn't seem to look too closely at any of the business financial info we brought. And when we were questioning him specifically about the ramifications of the company's loan with the bank and my DH's name being on there to secure it (we are not looking to discharge anything company-related), he said we shouldn't need to list that at all, because it is a loan taken out by the S corp, but then said, "and I can check with a couple other attorneys on that." I didn't think anything of that, but DH wondered why an attorney should need to check with other attorneys. Is this unusual? I just looked at it as him trying to give us extra reassurance on that. (You've probably picked up on the fact that DH is much more critical than I am)
So really, our only hesitation is that we were hoping to be more reassured that the business would not be touched. Not guaranteed of course, but we need to feel pretty darn confident that won't happen.
He said nothing will change with our mortgage (we are not behind and are keeping the house), or our checking account (we do not owe any money there). He said the credit union would not even be notified of our BK, which made me feel better. He said that it would be a 90 day timeline from date of filing...30 days til 341 meeting, then 60 days til discharge.
He echoed the sentiments here that we should not continue making credit card payments, especially when we are having to get relatives to buy our groceries to be able to do so. He said if it makes us feel more comfortable (as opposed to quitting payments cold turkey) to maybe make one or two more months of small payments (not even the minimums, as they are very large amounts). He said that for a couple of the CCs that have really large minimum payments, it could actually create more of a problem by paying them so much more than the others. That a trustee could reach in there, take money back from them and distribute it equally among all of the CC companies, thereby keeping our case open much longer and creating a bunch of paperwork.
Oh, one more thing. We have one of those zero interest, no payment deals on some lawn equipment that is coming due this summer. Our plan was to take the little bit we have in a 401K out to pay that off before all that accrued interest hits. The attorney said the 401K money can't be touched if it is in there the day of filing (which we knew), but said that we could withdraw it as soon as the day after filing and pay that off. Does this sound right? He said all they will look at for the BK is that one day snap-shot of how much money we have/where it is, and the 6 month look-back on our debt, spending, and income.
We will interview more attorneys, but overall I was left with a good feeling and DH said if our case didn't involve the business, he would feel very confident going with this one, but is not 100% convinced on the business front.
I know this is really long, I just wanted to include as many details as possible that might be helpful to others.
Please tell me if you see anything here that sounds especially good or bad or outside the norm.
Thanks!