A slight quandary on the way to filing Chapter 7...

[joecool]

Hello all,

Brand new member and poster here. I did a quick search and could not find any answers so I thought I'd start a new thread and see if anybody could offer some advice.

I've just finished paying all my legal fees and filing fees and filled out all the paperwork preceding the court appearance for my Chapter 7. The next step is my attorney actually filing the paperwork.

We hit a last-minute snag, in a matter of speaking. Nothing to prevent the filing, but a chance to do something with money that will likely need to be surrendered otherwise. Here's the situation: I have a term life insurance policy that has a surrender value of about $2k. My attorney told me that the trustee would likely have me surrender this money and pay it towards my debts, and advised that I surrender the policy now and do what I can with the money before filing (since I need to have a total of $100 max in my bank accounts at date of filing). She said that later on in the year I could open up a new life insurance policy with my place of employment if I chose to. She was even nice enough to give me a month to get this cash surrender thing worked out before she filed for me. Couldn't have asked for a better experience, even though I am not quite out of the woods yet since the court date will likely come in September or so.

My question is this: what can I do with this $2k in just less than a month that will not send up red flags with the trustee? (I live in Indiana, btw). My lawyer advised that I should do basic things like car maintenance, home repair, and maybe some groceries. I cannot hold onto the cash and I also cannot gift it to someone else. When I pressed her for a bit more specific guidance she said that I can pay off my next due car payment and one more payment after that (I am reaffirming the car). She also said that I can pay off the $500 I owe on a furniture installment loan so that I can keep that. But this still leaves about $1k from the $2k surrender value. I live in an apartment, so home repair is somewhat of a moot point. And short of getting 4 new tires I don't know what else I can do for my car, which is in good condition. And clearly, getting a new iPod or TV would be an extremely unwise way to spend this money. I really don't feel like buying $1000 worth of Rice-a-Roni, but I could really use a couple of new work shirts and pairs of shoes. Nothing at all that would come close to $1k, but just a couple of little things like that.

Any advice on how to spend about $1k in a very limited amount of time, yet in a responsible way that won't get my trustee's panties in a bunch?

Thanks in advance for any help you can provide.

- Joe

[joecool]

To give some background to the above post (and as a general introduction to how I got to this point), I am filing Chapter 7 mainly because of credit card debt. I have been unable to share any of this with anyone except for my (now ex) girlfriend and with my bankruptcy attorney. My parents and my coworkers don't know, and I don't plan on telling them. So thanks in advance for hearing me out.

Over the course of the past few years, I had been helping my (now ex)girlfriend with some expenses with her family and just in general living above my means thanks to those wonderful credit cards (note sarcasm). It needs to be said that her family are really great people, but they seem to have clouds constantly following them around. Her mom is mentally disabled and unable to work and her sister is severely schizophrenic and in and out of the hospital (she is doing better now though she does still have setbacks). They get help from the government but not enough to live comfortably, which she wants more than anything for them. So virtually all of her extra money was going to her family, for things such as braces, apartment/house moves (4 times in 4 years), Christmas, and paying for a sewage problem at her mom's house. I helped out a little where I could directly, and also charged whenever we went out to eat (which was way too much).

I decided to take a debt management class, where I was told to pay the minimum on all cards except for the one with the highest balance, to which I should devote all of my extra money. This was called "the system." Problem is, I didn't budget enough for food/gas/entertainment, and I ended up charging on top of that, so this "extra money" was never really there and the cc balances just got higher and higher. I was never even able to get on "the system" in the first place!

However, things really started going downhill last year when I bought a new car. See if you can count the mistakes in this paragraph: First off, I was only one payment away from completely paying off my previous car, which was in fine condition. But I got a new car with a V6 engine, sunroof, all the good stuff, thinking that a $90 increase in car payment was reasonable since I could afford it. To get that payment, however, my credit wasn't good enough on its own and I had to co-sign with my girlfriend. Also, I had to sign for a 6-year auto loan for that payment. Looking back, it is so obvious that any one of these signs should have made me decide to just keep the car I had. Further, I am about about $5000 upside down on the car loan, and I get significantly worse gas mileage. This will no doubt go down as one of the worst financial decisions of my life. And I was 29 when I bought the car, so I really should have known better. But what's done is done. I do love my car, but I really, really hate the financial turmoil it has wrought upon me (read on for the ripple effects).

About 3 months after I bought the car, an installment furniture plan (one of those 0% for 12 month deals) was set to expire, meaning I needed to pay off the remaining balance or else get socked with the retroactive 25% interest rate on the entire purchase price. I had planned to play the "balance transfer game" and simply transfer the $700 left on the furniture plan over to my Capital One card. Capital One was, at that point, the only one of my four credit cards with enough money to do this- I was close to maxed out on the other three. But just before I was about to transfer the balance, Capital One told me they were reducing my credit limit by $1000. Thanks again, irrational car purchase! This forced me to consider splitting up the $700 furniture balance among three or four credit cards, since I had at most $200 left on any one of them. But even with that, it would have been a tight squeeze, if even possible at all.

Enter Credit Card Number 5. I realized that I had recently paid off a Chase credit card (well, more accurately I transferred the balance out to a 0% introductory on another card, when the Chase 0% was set to expire), but I never. closed. the. Chase. account. I was at once relieved and horrified by this. Relieved, because I was able to avoid getting hit with that heavy furntiure plan interest penalty and pay off the Chase card on a more lenient schedule. Horrified, because this was the fifth credit card I was putting money on, when the other 4 were all dangerously close to being maxed out, when I already had more than $20000 in cc debt, and I just knew that I'd have to rely on this fifth card for all (necessary) credit card purchases if I was to make any kind of progress on the other four.

And then, my girlfriend and I broke up in September, after nearly 10 years together. It was an almost unbelievably amicable breakup, and to this day we remain the best of friends, talking every day and meeting up at least once or twice a week. She kept the house and the 2 dogs, I kept the cat and moved out into an apartment. There was no argument at all over who would keep the house, as I have always liked apartment living better and she really wanted to keep the house.

My Chase credit card was a close ally there for a while- moving expenses (a U-haul across town and back), new entertainment center/TV, new kitchen, bathroom, cleaning stuff, etc. I was able to keep my old VCR, DVD, stereo, bedroom furniture, kitchen table, living room chair. I was also able to pay cash for a new mattress thanks to a bonus here at work in March. But the living room furniture (couch/tables) went on the furniture plan I mentioned in my first post.

Living expenses nearly doubled due to living on my own, and so money dedicated to paying off cc debt got less and less.

Within about 5 months, I had nearly maxed out my Chase card and my available credit was dwindling by the day. Paying minimum payments became my only option. And because I would occasionally go over my credit limit on a card or two (although promptly pay it back down below limit), things also got fun on another front: interest rates started to rise. A point here and there, comes with the territory. But then Citibank raised the interest from 12% to 20% and would not budge. I was making very slow progress on Citibank and things were hanging by a thread for a while.

Then two months back, Chase raised their interest from 13% to 26%. Two days after that, due in part I am sure to Chase acquiring Bank One, Bank One raised their interest from 10%... to 30%. Also, both socked me with an overlimit fee since the extra interest put me over my credit limit on both cards. Now I was faced with not only being unable to make progress on my cc debt, but due to the newly heightened interest I was faced with going over my limit for months at a time, acquiring the same overlimit fee and repeating the same circle again and again.

Plus there was the $500 left for furniture payment. Plus my student loans, currently on forebearance, were to be restarted in September at about $100/month. Suddenly I came to the realization of just how bad things had gotten. How could this have happened? No medical bills, no lost job, no back taxes. Just one bad vehicle purchase decision and one heck of a lot of credit card trouble. Over $30000 to be exact.

My ex-girlfriend had just talked to a bankruptcy attorney, a very good one, actually. Referred to by many as the best in the state. She told me she is easily eligible for Chapter 7 and that she should have made that decision a year ago. She urged me to consult with this attorney as well. I at first resisted, considered some debt manangement companies. Still somewhat in denial of how bad things have gotten. But then I thought about the upcoming Bankruptcy "Reform" legislation and thought that if I was going to act, I had better do it soon. So I went ahead and made the appointment with the attorney.

I learned pretty quickly that Chapter 7 would work best for me, and so $1209 later, here I am, ready to file with only the above insurance policy question standing in the way.

I was so grateful to find this forum. I'm looking forward to returning, reading, and learning over the course of the next few months, and also to a brand new start to my life once the discharge is complete.

[HHM]

Wow, you did a lot of typing. You may wan't to post a summary version.

[joecool]

Sorry, it just kind of all came out at once. That stuff's been inside me for a long time. Here's a quick summary, including the question in my first post.

Background: I am filing Chapter 7 here in Indiana because of excessive credit card debt, totalling more than $30,000. No secured debt is at stake- I am keeping my car, paying off my furniture, and surrendering my interest in the house I bought with my now ex-girlfriend. We are the best of friends and have talked this over extensively, so legally there should be no problem here.

A number of factors contributed to my decision to file bankruptcy, including making an ill-timed and poorly thought out vehicle purchase, moving out on my own and adding significantly to my living expenses, and finally incurring unreasonably high balance/limit ratios and interest rates on the credit cards.

I have not used a credit card since my first meeting with my attorney back in late April.

Question: In my paperwork meeting yesterday, my attorney noted that the trustee may have me surrender the cash value of my term life insurance policy (approximately $2000) to pay towards the debts I owe. She didn't guarantee this would happen but advised that to be safe I should surrender it now. She gave me a month to do so prior to her filing for me at the end of July. She said I should use the cash from this policy to take care of things like car maintenance, home improvement, and groceries. She also said I can pay off the furniture and the next two car payments I owe. But $2000 is a lot of money, even after I take care of the furniture/two car payments. I can do minor things for the car and maybe buy a shirt or two and some groceries, but even with that I will still have a big chunk of change left over prior to filing.

So my question, and I may need to also go back to my attorney on this for more specifics (and probably will soon), is how would you advise spending the rest of this money without raising red flags with the trustee? I cannot gift it to anybody and I know it wouldn't be smart to buy something like a iPod with it. But what other options do I have? Perhaps donating to charity or some other alternative? Or should I just kiss that money goodbye?

[Cmonlottery]

Go to some of the big chain stores you shop at and buy shopping cards (or gift cards). That way it is there if you need it but is not really savings.

[joecool]

That's a good idea but it looks like I'll be okay. I spoke to my attorney again and I was able to get a more detailed list of stuff I was allowed to spend the insurance policy money on, such as a vet visit for my cat, going out to see a movie, getting a couple shirts and pairs of pants for work, and coolest of all getting gasoline for my car. Plus I will get a couple of groceries for my friend too. She just said to keep as many reciepts from this as possible. The only question is can it all be done by July 26th? I am thinking this won't be a problem.