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Balance Transfer Issues

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  • Balance Transfer Issues

    I am including 4 credit cards in my Chapter 7 to the tune of $17,000. 3 are from Chase, 1 Discover.

    I used a balance transfer offer to send $2,500 to 1 Chase from Discover 6 months back. There was an offer for 18 months no interest and transfer fee free. That card, which has only the balance transfer mind you, is down to $1,600 now.

    I am currently making minimum payments to all of my cards. My concern is if I should try to put more money towards the balance transfer card and have it fully paid off before filing? Searching online made me fear of the 'Fraud & AP. I don't understand how a balance transfer is so bad in this situation, but I fear it greatly resulting in a terrible bankrupcy experience. I honestly have no idea what is best. Your thoughts appreciated~

  • #2
    If you've paid down the balance transfer from $2,500 to $1,600 over six months, I'd think you have a low chance for an AP. Here's why:
    - Balance transfers are not unusual for people trying to save money on credit card interest payments
    - You've shown an intent to pay the BT by making six months of payments
    - $1,600 is a pretty low amount for a creditor to try to hire an attorney for an AP. If this were $26,000 that you just got three months ago, your chances of AP would be higher.

    With that in mind, I'm concerned that you might pay this off though you plan on filing bankruptcy. Will you file within the next 90 days? Paying any creditor $600 or more within 90 days is considered a preferential payment, which could be clawed back by the trustee. This would make your BK slightly more complicated if the payment was reversed and the creditor wasn't included in your BK. It may be better to simply include the card as is. It's almost guaranteed the card will be closed once you file BK anyway, even if you paid it off before filing.

    Is there a compelling reason to not include this bank in your BK? If not, why not use these funds toward groceries, home repairs, or something that would be considered an acceptable way to convert this cash to an exempted asset? If you are still concerned about an AP, I would continue to make the minimum payment on the card until you file.
    Last edited by leonel9; 10-03-2016, 02:23 AM. Reason: Clarified impact of preferential payment to creditor not included in list of creditors.

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    • #3
      It is widely held that balance transfers do not constitute incurring debt, unlike making purchases or taking out cash advances, which obviously do result in incurring new debt. This means that a creditor cannot use the presence of balance transfers and subsequent default to mount a bad faith objection to discharge.

      If you think about it, someone who is heavily indebted, and nearing insolvency is more likely to pursue balance transfers in order to take advantage of promotional APR's than someone with minimal debt. Creditors understand this, and are well aware of the risks involved when they agree to transfer existing debt to their accounts.

      In any case, the dollar amounts in question ($2500 and $1600) are way too low for any creditor to consider filing an AP over, and since you have already made several payments, they would have no way to prove fraudulent intent even if the amounts were large enough to file over. Once you have made the decision that bankruptcy is definitely in your future, you should stop paying ALL unsecured debts--including these two credit cards. Any money which you are currently putting toward unsecured debts should instead be devoted to living expenses, deferred maintenance/repairs on your home and car, any medical/dental procedures which you might need, and stocking up on exempt items such as food, medicine, replacing worn-out clothes, etc. Paying your unsecured creditors WILL NOT help anything--including your credit scores post-bankruptcy--and is money down the toilet at this point.

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