How Close Do They Look...

[audreyl]

Hi, my husband and I decided tonight that we are going to have to file bankruptcy. I was wondering how closely your cc purchases are examined from prior to filing. For example, on Wednesday we had to purchase winter clothes for us and our children. It came up to approx. $224 at Target. (We moved to Wisconsin from Florida this summer. We had no winter clothes, boots, coats, etc.) We also made several other purchases at WalMart, etc. and had heavy usage within the past three weeks. My husbands hours just got cut, and his pay is going to be significantly less.

We cut up our credit cards up tonight, but we are worried that eyebrows will be raised at the heavy usage prior to filing. We did not charge knowing that we were going to file, but we did have some large purchases at Target, Festival Foods, and WalMart.

Our Stats:
CC #1- $8500
CC #2- $8200
CC #3- $300
Dell- $1500
Med. bill- $650
Stud. Loans- $30,000
Car payment- $335
Ins.- $60-car $35-life

We are planning on keeping the car and laptop. Any answers would be appreciated. We are planning on filing in Feb.

[Genenco]

1. See a lawyer.

They will best be letting you know what's what. Maybe you may have to pay back, maybe not. Also, depending on paychecks, if you're above median, you may be forced into Ch 13. But, again only a lawyer can fully answer all your questions...

BTW They now look you over with a microscope. So your first and only goal is....HONESTY, complete and TOTAL HONESTY!

[AAAArt]

Save the receipts to show that they weren't for "lavish" purchases. You may have to wait up to 90 days to file.
OTOH, you don't have to pay your cc bills if you are going to file. You will get harassing calls (We have caller ID and at first we just checked names before we answered. Towards the end, I finally just turned the ringers off and checked the answering machine once or twice a day.
Warning, this will cause your credit scores to fall, because it will show late payments, but after Bk is discharged, they will begin to rise again.
Again, see an atty. or 3 or 4, for free consultations. The new law has changed many things and you need info. BTW, most atty's will give you a free initial consultation.
Best wishes, Art

[FoolAndHisMoney]

If it was anything like the below then the court presumes that you charged while knowing you were going to file and will make you pay back recent charges. $224 is less then the $500 and it "shouldn't" be considered a luxury purchase. If you think you charged $500 for what's considered a luxury purchase or took out a cash advance for $750 then wait at least 90 days before filing and don't pay any unsecured creditors payments that exceed $600. You should probably just stop paying credit card bills all together and save it for a lawyer.





New Bankruptcy Law taking effect on October 17, 2005: Debts you incurred on the basis of fraud, such as lying on a credit application; Credit purchases of $500 or more for luxury goods or services made within 90 days of filing; Loans or cash advances of $750 or more taken within 70 days of filing;

[StaciMM]

You should be ok on the charges you mentioned (assuming no single transaction was 'largel in amount & no cash advances). Stop paying credit cards now, start living within your means. (Once you file-you'll have no choice, so the more 'practice' you get the better off you'll be.)

Look for ways to cut your budget. I don't know how/what you spend now so this may not be a problem area for you-it doesnt' hurt to mention it though!

[StaciMM]

PS-

In case you are not aware, the BK will not get rid of the student loans. During the bk process though, the student loans will be put into a deferred status so you won't have to make payments from the time you file until discharged.

[audreyl]

Thank you for all of your replies!
I am aware that the student loans will not be earased. I am currently a student, so all of my loans are already defered until I finish school.

I have been haunting the forum, and have another question.. We are planning on keeping the car (we're leasing) and I want to keep the payments up to date and on time. Would paying the car, car insurance, and life insurance be considered preferential payments? I have no problem not paying the CC's. (With what we are paying in minimums we can save up the filing fee/ attorney's fee in a snap.)

From what I see, we are a clear no asset chapter 7. I took an means test and we came back below the line.

Thanks again for all of your replies!

[edwards2]

I agree - the purchases you made were not for luxury items so you should be okay. I also agree I would consult an attorney. My husband and I filed under the old law so I am not up-to-date on the restrictions of the new law. Obviously a lawyer will know. And it goes w/o saying be completely frank about what you spent and what it was for.

[AAAArt]

Making the payments you mentioned woul not be preferential spending, w/ one minor exception. (there seems to always be an exception <G>). If youpaid the car insurance an annual payment and it was over $600, that might be considered preferential. I listed my car ins. as monthly exp. because that's the only way to show it, but when it came due not long before we filed, a made a semi-annual payt. Our car ins. is just a little over $700 per year.
You are allowed to and shuld keep these payments up to date.
A preferential payment is (or was under the old law), a single payment of more than $600 to one creditor while not making payment to others. I say single payment, because (prolly should have said monthly payment), beause you can make 3 monthly car payments of $400 per month as long as it is when they are due, but to just send them 3 payments at once to get rid of cash is frowned upon.
You will want to check out Kelly Blue Book (just google it and it will come up) and find out the "Trade-in value) That is normally the value which the Bk court takes (or used to). Also check retail value to see where you really are with the car.
Are you familiar with the term "upside down"? It means that you owe more than the item is worth. Often happens w/ cars. If you are upside down to a significant degree on the car, you may want to look at a 722redemption. Use the search engine on this site and you will get plenty of info on that.
Best wishes and keep us posted.
I know that this is a difficult concept for some of us to grasp, but if you are going to file...then to continue to pay cc's is the same as just taking that money in cash and setting it on fire. It may make you feel warm for a short while, but there is no reason to do it. It will just be money down the drain. Art

[StaciMM]

A point worth mentioning regarding preferential payments-its only an issue when you prefer one creditor over others of the same type. Insurance payments would not be an issue, as they are not debt. (You pay for coverage, it is not an extension of credit as if you stop paying your coverage ends. Similar to utilities, cable, etc. Services, not debt-unless you're past due then the past due balance is a debt but not the future payments.)

If you owe money to a priority creditor you can pay them-such as IRS payments. Money paid to the IRS would not be taken to repay credit card debt.

If you chose to pay one credit card large amounts, but shafted the other creditors, the trustee in BK would take he big payment back and distribute it evenly. It isn't that you are being penalized but the BK court wants the creditors to be treated fairly.

The preferential payment amount of $600, by the way, is total. NOT just $600 in a single payment. So if you pay $250 per month for 3 months before filing to a credit card, you would need to list them on the part of the petition that asks about it. You would also list secured debt payments (car loan/lease) but secured debt payments will not be taken back by the BK court. If they were to do so, it would cause you to be in default and lose your vehicle.