Would Trustee See This as Fraudulent

We need some serious $$$ to pay income taxes. We don't have it. And the only place we can get it is from equity we have in a vehicle.

There are 2 ways we can go about this.

Sell the vehicle and hope it brings enough quickly enough before we file BK.

Refinance the loan to the max we can get on the vehicle.

I read at one attny's website there are certain things that are taboo to do in planning your BK. Don't max out your cards. You can't give away things that have a value greater than $600. You cannot transfer assets. This attny did say converting cash in to exemptable assets was OK to do. He went on to say if you do something that is ethical by any other standards, done in good faith, and disclosed to the Court up front, it shouldn't cause a problem with the BK. So either one we do, we'd most certainly tell the Court about it and why we needed to do it.

Selling or refinancing, either way, could look fraudulent to the Court. But we need the money to pay the IRS and we've got to do something. We would, of course, file our taxes and send the IRS the money before filing BK.

I think you would be fine to sell your vehicle and use the $$ to pay taxes. Assuming you got a fair price and didn't sell it to friends or family. And, paying taxes does not create a preferential transfer as they are a priority creditor.

Taking out a loan on the equity, on the other hand, could cause a problem. To do that, you would be taking on an extra monthly expense at a time when you know you're going to be filing. That I think could be seen as bad faith, a bit like you're padding your monthly expenses. (I don't think it would matter too much where the money went.)

You voiced our concerns, Staci.

But, I think you just explained something else to me, Staci.

One attny flat out said no to the refi. She felt a refi on the "eve" of filing BK would look like a fraudulent move to the Court.

Another attny said we could refi. I didn't know if he was making a flip comment or not. But he also said something else during that part of the conversation when we asked about raising money for our taxes. He asked if we had tried to sell the vehicle. Had we advertised it anywhere in an attempt to sell it. I wonder if he was thinking, but did not say to us, that a refi could be OK as long as we had made a good faith effort to sell and weren't able to. Hummmmm..........

remember that some things allowed by one trustee isnt by another trustee and then again allowed by that same trustee a month later.

its a lot of variables. depends on the number and on your own situation and anything else they see you doing on your bk petition.

my best way around this problem would be to keep on asking more attorneys. and i dont mean a few. i mean get out there and consult with even more. track the votes and compare answers.

irs loans arent that expensive buy the way. wouldnt that be cheaper?

Well,..............

You guys are so right that people filing BK really need to be pro Active in their own case.

I worried about the expenses issue. Yes the vehicle is an asset, but we also make a monthly payment on the loan, buy gas, insurance, etc. If we sell, there's a lot of expense $$/month we loose. It's the one and only reliable vehicle we own. The other ones all had repairs last year at some point. We spent a car payment/mo just on repairs alone for them. We ain't talking tires or oil changes. We're talking brakes, water pump, etc. And, it's the one and only vehicle we own that we can get our entire family into to go any where. I'd rather deal with finding a way to cover the asset issues than to sell and hope we can buy a replacement after BK.

We were feeling rushed about filing BK. Wanted to beat the mortgage lender to the punch on foreclosure due to "quick foreclosure" laws in old home state. Also, attnys led us to believe we could dodge Capital Gains by taking the house thru the BK with us.

Guess what???!! Bill Clinton fixed our Capital Gains problem for us. The Taxpayer Relief Act of 1997 expressly excludes CG for all home sellers up to $125K/individual and $250K for joint sellers. Regardless of age. There are qualifying criteria. Primary residence for last 2 years. Purchased more than so many years before. Etc. We meet the criteria. And if you are over 55, and had already taken your 1 time sale under the previous law, you could now take it again and not worry about CG. I don't know what paperwork we have to do, as I am still learning. It seems we could go ahead and do a Deed in Lieu to the lender and not worry about CG. We just need an attny to draft a statement to the effect that we aren't liable for any deficit if they don't sell the house for what we owe. A CYA for us so to speak. And get the lender to sign that they agree to our terms in advance.

If that's all true, and we could get the DIL, then we could delay quite a bit longer bef filing BK. Get us the time we really need.

That is good news!

sounds to easy to me. id ignore it and keep acting like there is a problem lol.

I gotchya about different Trustees and what they will or won't allow on any given day, BKF.

I don't follow what you mean about ignore it and keep acting like there is a problem??

I think he means to not get too relaxed, to keep researching/studying as you have been.

Well all I can say is my vehicle is for sell now. Once sold, it is being sold at fair price, I am using the money on exempt items. I've had 3 attorneys told me this was fine and the one that I'm going with I plan to go to his office with a list of things I am going to buy to make sure it's ok ahead of time. So if I go in there and the trustee says it is fraudulent, I have a nice malpractice case on my hands and I'm sure they won't like that so.. :)

Even if we can do the DIL and avoid Cap Gains, providing we can get the lender to agree not to hold us responsible for any deficiency. That just gets one monkey off our backs. We can't even begin to pay back the CC debt, and there's the income taxes we owe to deal with. So there's still plenty to worry about. No chance really to relax by any means.

Just last few days were all doom and gloom. We knew we'd owe taxes. Just didn't know how much. Find out we have huge tax debt. No way to pay the taxes. Foreclosure looming pushing us to file BK before we were ready.

Even tho it'll take work, it's kinda looking like we may have finally caught a break. Again, that's if the lender will agree to a statement we submit with an offer for the DIL. If the lender doesn't, we're back in the "rush to file" boat again.

From what I recall, the home issue was the main reason you were trying to file quickly. I also believe you've said you had been current on all payments to credit cards, etc. If the DIL works out, then you should be able to put at least several months between your last major activity on your cards before filing. Generally, they wouldn't go to collections for at least 6 months, and a few months more before judgements happened. AND if they did try for a judgement, you'd have at least a few weeks notice.

accounts get collected on within 3 months. not 6.

attorneys get involved for civil suits for at least another 3 months from my experience.

these are minumum times imo. anything can happen of course. it took 1.5 years for 1 to sue me. and that was for a huge chuck of change too.

Of course, 'personal experience' will vary with all of us as we've had different creditors, different payment situations, etc.

ill let you slide honey, but just between you and me - you are wrong :D

I was trying to be nice, LOL. You make it hard Bkfiler!

I don't think I'm wrong. Especially since the first round of 'collections' is often internal, when the creditor is still sending monthly statements & charging late fees. They wouldn't send it outside (or sell it) until they charge it off, at that point they no longer consider it a likely source of revenue.

I was trying to be nice, LOL. You make it hard Bkfiler!

I don't think I'm wrong. Especially since the first round of 'collections' is often internal, when the creditor is still sending monthly statements & charging late fees. They wouldn't send it outside (or sell it) until they charge it off, at that point they no longer consider it a likely source of revenue.

now i know its hard for others to see us argue, esspecially you being the mother of my pumkin and all, but the general collections time is 120 days (3 months). thats when it goes to 'collections' usually. this is the standard.

after that they try for at least 3 months before attorney gets involved. this is standard.

yes anything can happen - and if its a mom and pop place then they can go the day after the due date lol.

look at my case, it took them, a very long time to file suit. but collections stated 3 months afterwards on all of them mostly.

Here's my take on this one.

1) Keep the car. It will help with your expenses.
2) Take a loan thru the IRS. Wouldn't this also help with your expenses since IRS debts are non-discharchable?
3) File BK
4) After discharge and the waiting periods, sell the car! THEN use the proceeds to pay the IRS.

None of my cc's went to collection at 3 months. A couple of them went into collections at 4 months, the others at 6 months. No threats to sue on any accounts until after CO's that occured after 6 months of non-payment.

Just my experience for whatever it's worth.

Onlybrokeonce has a good point-you should be able to work out a payment arrangement with the IRS, and that would count in your BK budget.

irs loans arent that expensive buy the way. wouldnt that be cheaper?

i agree again! :D

OK, tell me if what I am thinking would happen is correct.

First, I wanna be clear about our exemption. We are under Missouri which says we can exempt "Any motor vehicle in the aggregate, not to exceed three thousand dollars in value". Do we double that 'cause we're filing jointly??

Depending on the day, and who's doing the valuation, we have $7500 to $12000 worth of equity in our truck. We know we owe Uncle Sam a substantial chunk for sure. Maybe some to states as well. We could easily spend the money from the sale of the truck, no sweat. If we use our vehicle exemptions to cover the older cars (kids' cars and Hubby's truck), we can't protect our equity in the truck. Maybe part, as in tiny bit.

Taxes are a priority debt, right? As a priority debt, the taxes must be paid before CC's, right? Trustees take what makes them money, right?

If the Trustee takes the truck to sell it, the proceeds go straight to the IRS and/or states to cover our tax debt. No money for the Trustee, right? Well administration fee, but no big bucks by any means. And there would be costs to sell the truck as well. Is that right? So if the Trustee can't make any money from selling the truck, would he/she most likely take it anyway??

Have I learned correctly?? Is this all right or am I totally confused?? Would it be a gamble??

You double whatever your exemptions are if you file jointly so you are correct on that. As to the truck situation I would think they would take it. IRS is, like you said a priority debtor, and even though they don't make any money off of it per sae they are both federal so I would imagine they would still take it. I don't know for sure, just my opinion but if it was me I would think they shall. Good luck :P

We saw another attny yesterday. He says we should keep the truck and file our taxes. Submit the filed taxes with the BK saying we plan/need/want to arrange a payment plan with IRS for taxes owed.

The attny will sprinkle our vehicle exemptions around to keep the cars from being appealing to sell. He said he'd put a chunk on Hubby's truck to be sure it was protected. Evidently, whatever you exempt on an older vehicle, the Trustee has be very certain that vehicle will bring more than the exemption to be worth their while. Because, the Trustee has to pay us the amount of the exemption. Say we have a car with NADA book value of $2000 but is in really sad shape. We exempt $1000. The Trustee takes a look and decides not to bother with it.

Somewhere in here, I get lost. The attny doesn't seem to think the Trustee will sell the truck even tho we have equity in it??!! He said over and over again, "Keep the truck. Work out a payment plan with the IRS. The IRS will take next year's tax refund. Trustee won't even get that. In 2 years or less you will be paid up with the IRS. Plus, the IRS payments help with your expenses to go Ch 7." Is that because the Taxes to the IRS are priority debt?? The Trustee will have to pay the IRS first and potentially not make any money off the sale of the truck??

Is this just a bunch of Bull or what?? Would we be playing a game of "Chicken" with our exemptions?? See who flinches first??

The taxes help with your ch. 7 potential because it is one more monthly expense that will be considered. Such as the first attorney you spoke with that said $190-something for a ch. 13, if you went w/ his version of your expenses and deducted an IRS payment, you'd no longer have enough for a 13 payment.

Regarding the truck-I don't recall how much equity you have compared to how much your exemption is...

The taxes help with your ch. 7 potential because it is one more monthly expense that will be considered. Such as the first attorney you spoke with that said $190-something for a ch. 13, if you went w/ his version of your expenses and deducted an IRS payment, you'd no longer have enough for a 13 payment.

Regarding the truck-I don't recall how much equity you have compared to how much your exemption is...

We get $3000 each, or $6000 total for household goods. Plus we have a couple wildcard things. Any property of any kind not to exceed $600 each, $1200 total, and another one. Any other property, real, personal or mixed, or debts and wages, not exceeding in value the amount of $1250 each, $2500 total, plus $350 for each of such person's unmarried dependent children under the age of eighteen years or dependent as defined by the Internal Revenue Code of 1986. The last exemption cannot include 10% of gross earnings that have not yet been paid.

We have $3000 each, or $6000 total in exemptions for vehicles. The attny we saw said he would sprinkle that around, a little on this vehicle and that, a bigger chunk on Hubbys's truck to protect it. Never said how much he'd put on the newer truck.

Depending on who does the values and what source they use, we have anywhere between $7500 and about $12000 in equity in the truck.

So we specifically asked, "Shouldn't we sell the truck to pay the taxes?" and he said, "No. Keep the truck. It's the nicest one you own. The others are old and probably breakdown a lot. This one has warranty. Just keep it. Plus the IRS payments will help with the Ch 7." But we didn't get a clear explanation of how he thought we'd come out the other side of BK, with the truck.

Why would the Trustee not sell the truck? Is it because the first person to be paid is the IRS? No money from the truck for the Trustee put in their pocket??