Question Received money from insurance company for new roof, still need to pay contractor

[sealpup]

My husband was unemployed for over a year. We have about 30K in cc debt and are considering filing BK soon.
During the time my husband was unemployed, a contractor came and convinced us to have a new roof put on all paid for via our insurance claim (they waived our $500 deductable in the form of advertising). The $ from the insurance company came to us and then was forwarded to our 1st morgage company who held it and dispursed it to us to give to the contractor over 4-5 checks. We recived the last 2 checks the end of September. At that point we were behind on just about every bill due to my husbands unemployment. Instead of giving the $ to the contractor, we deposited it into our account and used it to pay our living expenses- mortgages, groceries, etc. Figuring that we would save up and be able to pay the contractor when we were in a better position. About a month after that my husband found a job. We are at a point where we could realistically save up the amount due to them within about 4-6 weeks and still pay our living expenses and morgage. (We stopped paying credit cards a long time ago, with the exception of 2 which we have payment arrangements with). However, we are pretty sure we are going to file BK in the next 1-2 months. How will the fact that we owe them this $ affect us in BK? If we file it before we pay them is it considered part of our debt- even though the $ for it came from the insurance company? Is it considered preferrential if we pay them what they are owed? We did sign a contract with the contractor saying we would pay him every dime we got from the insurance company. I am worried that they (trustee) will see the deposit of these 2 checks back in Sept. and wonder where that came from. And then if we do save up and pay what we owe the contractor the trustee will wonder what is going on with this too. But I guess at least there would be a paper trail with the insurance and mortgage companies to prove this. I'd rather just save up and be done w/the contractor, but I don't want this to mess up filing for BK. I also worry if we do roll this into our BK filing the contractor won't honor the warranty on our roof if we ever have a problem. Can they do that?
As a side note- yes- I know it was wrong to have done this and regret it now- but felt like I was between a rock and hard spot with trying to keep up with our living expenses and feed our 3 kids under 6.
Thanks so much!

[Charlie777]

The contractor probably has a unperfected mechanics' lien on your home. If you pay them I think (I'm somewhat informed but not an expert) the worst that would happen would be the trustee could make them return the preferential payments.

[scorpion35]

u are going to pay them right?
or are u going to included them in your bk?

[Flamingo]

Pull out the contract you signed when your new roof was installed and you will see what they can do if you do not pay the amount due from your insurance proceeds. You may run into some issues from this with your mortgage carrier and/or your insurance company since you used those funds for other purposes. This is not like you backed into a tree stump with your car and sustained damage, took it in for an estimate and got a check for the damages that you could use for something else instead of car repairs You had a contract here with your mortgage company as a loss payee also on one end disbursing funds to you to make payments for repair work on a house on which it holds a mortgage. The contractor will contact the insurance company who will refer them to your mortgage company since they are a loss payee and there could be issues. Since you are in breach of contract by not paying the balance due, they do not have to honor their end of the contract so if something goes wrong with the roof, you are out of luck. I am not sure as to any manufacturer's warranty as to the roof material itself being affected; you would have to speak directly to a company person on that one (i.e., shingles themselves, not the work). Talk to a BK attorney as to your options since it appears you are planning on filing anyway. All debts are listed in a bankruptcy filing and this is a debt owed that is outstanding.

[sealpup]

scorpion35- My plan all along has been to pay them and I'd still prefer to do that instead of including it in the BK. It's all just a matter of timing as I am trying to file before some other things get worse. I just don't want to save up, pay them and then have some trustee wondering were a few thousand dollars went to. But I guess maybe I have a paper trail to prove that we owed it to them from the insurance company.

I hadn't even thought about pulling out the contract! I will dig that up and see what it says.
Thanks everyone!

[tobee43]

this is a house repair due to damage...i'm certain you would not be lifting the trustee's eyebrows by paying them.

also...as flamigo points out...in many mortgage agreements you must maintain the house...NOT all...it will depend on what it says...some mortgage companies are also the payee as pointed out.

again...this was for damage to the house and it's not like you went out and spent money for going out for dinner and buying luxury items....things happen. i think you'll be fine.

[sealpup]

Just a little update-
We had fully intended on paying most or all of this by the time we had to file BK. We have had a few other unexpected expenses (vehicle tires, repairs, increased mortage payment due to our mod) and have not been able too. And we are getting a much smaller tax refund than we had in previous years. I did send him a check for a portion of the amount (over $600) to the address listed on their website, contract and business card- and he claims that was the wrong address and that he did not get it. I am going to be closing the bank account that the check was written out of within a few weeks (as it's a USAA acct. and we are including them in our bk). So I'm guessing he won't even get that payment. With a few other things coming down to the wire, we need to get filed as soon as we can pay for it- hopefully within a few weeks.
I've looked at CO law and it says that depending on the situation a mechanics lien has to be filed (or an intent filed) within 4 to 6 months of completed work. This work was completed April 2010, so based on that I believe it would be too late for them to exercise their mechanics lien rights. I certainly realize just like any other creditor they could sue, get a judgement and get a lien, etc. But with as backed up as the civil court is in my county even if they went and filed a lawsuit today, we would have our BK filed before our due date to file an answer. I did find the contract and bascially in regards to non-payment it says they have a right to file a lien and will charge legal fees, etc and 1.5% month- but how, or starting when, would this be calculated since technically they received the payment in the form of 2 checks from our mortgage co. at the beginning of June (which was the final payment) and then they held onto the checks until mid-Oct. before attempting to cash them- that was not our fault! And I'm wondering why they did that. We were not in posession of the new/replacement checks until the beginning of October.
I'm guessing at this point this will just be a part of our BK like everything else. And since they won't have a lien pre-bk filing, this isn't considered secure debt, is it?
Thoughts?
I do have an appt. to speak to our attorney about it on Tuesday. The only reason the $ had to go from our insurance company to us, to the mortgage company and then back to us and the company was because was over 10K. The checks from the insurance company had our names and the mortgage company's name on it. The checks coming from the mortgage company to to contractor had our names and the contracting company's name on it. The company did get over 2/3 of their $- in checks that were cashed by them and cleared last spring. The owner of the company is a little strange (he somehow changed last names after signing our contract?? and he started his sales pitch to me by saying "I suppose someone has already approached you about your roof?" I should have known then. I'm not a salesperson, but that seemed a little weak!) and was short with us even when we were in good standing. He used to just drop by our house all the time unannounced. Part of me wouldn't put it past him to get upset and come knocking at my door and threaten me, or send a crew to start pulling shingles off my house. I'm guessing it's maybe just about time we just give him our lawyers name and # and tell him he will have to deal with him about this? Is his only remedy within the law right now to file suit and charge me interest?
What could the mortgage company do if they found out? I am tempted to just call and tell them the truth. The contractor has been asking for their name/# as well, but I have no given it to him. The checks we cashed were made out to my husband and I, and XYZ contracting company- no "and" "or" on the check. My husband and I both signed the checks and deposited them and they cleared w/o issue. We didn't forge anyone's name or write "XYZ contracting company" on the back of the check. A lawyer has told me b/c of this it cannot be considered fraud or forgery, etc.

[plumbingbg]

I would just file a bk on contractor to, if you got a new roof you shouldnt have problems for 30 yrs or so and your family is more inportant at this time lein can be removed after you file with attorney for extra 100 bucks or so you need to protect yourself right now