How important is it of making several payments after a luxury purchase?

[JCSanDiego]

I’m going to be filing chapter 7 (no-assets) at some point down the road – after reading hundreds of posts on this site, it seems the best way to “prepare” is to stop using cards and going to cash for 90 days minimum to avoid the presumptive fraud rule, and then wait as long as I can (until I get sued/receive a summons), and at that time, file. I’m going to see a lawyer this week.

I’m 35 days into the 90-day presumptive fraud rule, so two months to go and at least that part is done. I know they can still come after you, after the 90-day rule if they believe they can prove intent to fraud, but I’m going by the book, as they say, as best I can to avoid any challenges. I’ve got about $75K in credit card debt, spread out amongst 8 cards. Sparing you all the details… the question I have – my biggest concern, is that I spent $4500 on airfare for my family three months ago. At the time I thought I could make the payments but I just lost 40% of my pay at work. Not to make excuses, I created the problem and life happened and here I am. Anyway… I’ve made two payments on that card with the airline tickets. I was planning on continuing the payments up til I file, so I don’t look like I bought the tickets when I was insolvent. I know that’s fraud. So two months I’ve paid on it – now it’s November… and I’m broke.

The million dollar question… should I pay that card a third straight month or does it not matter at this point? Two months or three – does it matter? I’m just worried the creditor will see the purchase and file an AP on me – and at the same time, I’ve paid that card until now – never missed a payment. Two months since the airline tickets, paid the card two months… now I’m really strapped for cash and I just don’t know what to do with that. I want to pay it – obviously for several reasons, but more so to show I’m making the effort – my intentions and such, and avoid any issues when I file. Or, does anyone think it would even matter – two consecutive payments vs. three, so why shell out the money when I need it? I’m going to run this by my attorney – when I get one, of course. Just wanted to see what anyone thought.

IMHO the obvious thing to do seems like one wants to demonstrate an intent to repay a debt… the part that’s stressing me out is that I have only made two payments on that card and I feel I should make a few more to establish that intent.

I respectfully ask for any thoughts, suggestions, or opinions on this… thank you in advance!

• JC

[justbroke]

It's very important, simply for the fact that it is automatically considered to be, just on the face of the fact tht it was over $750 (or $900... can never remember) within 90 days of filing. Bankruptcy law "assumes" that you were definitely insolvent the 90 days prior to filing.

As for not paying or attempting to pay, a creditor which allow you to make luxury purchases, could claim that you never intended to pay. This actually happens. It is referred to as running up debt on the eve of bankruptcy. It's the same type of think that happens in divorce cases where one spouse runs up all the credit accounts, hoping to dump the debt at the dissolution hearing.

The Trustee, and the creditor for that matter, may certainly question $5,000 in luxury goods or services on the "eve" of bankruptcy. Not making an effort to pay invites the creditor to file a complaint to bar that debt from being dischargeable.

At this point, it is what it is.

Now that I probably scared you, it is possible that the creditor won't care at all. It is really incumbent upon the creditor to decide that you charged up on the eve of bankruptcy and made little to no effort. For banks, there is probably a minimum amount before they'd consider going down the road of seeking a dischargeability suit... and I like to think it's somewhere around $4,000.

This is just too much of a 50-50 chance that the creditor would care. The larger the creditor (Citibank, Bank of America) the less likely they'll care (I say that because Citi didn't even file a claim, in 2008, of over $32,000 in my Chapter 13). But smaller creditors, and definitely credit unions, may feel differently. Personal creditors, like family and friends, tend to be the most vicious creditors; they know where you sleep.

I hope that helps.

[JCSanDiego]

Good Morning! Thank you for your response.

Apologies, I wasn't very clear on my timeline. I won't be filing within the 90-days but as far outside of that as possible - perhaps waiting as long as I can until I receive a summons and then forced to file. From all the great info I've read on this site I "should" have 3-6 months after the 90-day rule, before I file.

I think you still answered my questions - very grateful, thank you! What I meant to ask was the importance of making more than 2 payments after a big, "nonessential" purchase such as my airline tickets. I bought the tickets in middle of August, paid August's bill on September 1, October 1, and have not paid October's bill Nov 1. So, charges made in mid-August and I've paid two months since. I was just wondering if I should pay another month - if that would help somehow, or if it's irrellevant whether it's two or three payments. Make sense? My thinking was that, because it's a pretty hefty and nonessential purchase, it might behoove me to continue payments as long as I could - or at minimum, make three payments. I would have done that this month, but fell short on cash so I could make the payment but I also really need the cash for household items, bills, etc.

May I ask your thoughts on that? Whether or not you believe making a third consecutive monthly payment is the way to go or no better than two?

I'm hoping to file after April, which will put me about 7 months between the last time I used the card(s) and the date I file. I will move that forward, of course, if possible, but I think that will depend on when I get a summons. With luck I can get a year from last use, and then file. Going to meet with the attorney this week - ultimately he's got the plan, but from everything I've read on this site I'm trying to proceed with caution...

Thank you again - sincerely, for your advice and encouragement!

[justbroke]

I think it's important to show that you tried to pay, but I wouldn't take too much stress if you're "unable" to pay. If you're already unable to pay then there's no sense worrying about it. It's just that if it were within 90 days of filing, it's much more obvious that a debtor "may" not have intended to pay at all and knowingly made charges on an account for which the debtor knew they couldn't afford. That's where the "presumption" of abuse arises.

An attorney should certainly clear up any, uncertainty.