Inflated Income, $100k unsecured, $36k assets

[FreekingOut]

This is what I’m thinking now. Worst Case: If I get the taxes done, cut a check to the IRS, get the COVID push to lower or defer payments and still make those lower payments over 90 days; then all transactions will have 90 days between them and the filing, the lower payments shouldn’t be preferential, because they’ll be lower than $600, I can avoid late marks on the credit report, the IRS tax debt will be satisfied, I can still work to pay the bills outside of the cash-on-hand (but still stay below the means test for Chapter 7), I’d still have $15,000+ for the Trustee to take after the tax prep, lawyer fees and tax payment and there should be no reason why it doesn’t go smoothly after the 90-day mark. Does that sound reasonable?

[FreekingOut]

justbroke ok. I’ll be talking with my bk attorney on Tuesday. I’m also wondering if I’ll have to wait for the IRS to bill me before including the tax debt in the Chapter 7. I’m fine with it being non-dischargeable, but if the IRS takes 16 weeks or more to process the amended returns and to send the bill, I’m not sure how long I can last financially. I’d like to make the minimum payments until we file, to avoid adding late charges to the Chapter 7; and I’m wondering how long I could go without making payments before the creditors filed suit for garnishment. It seems at this point that any minimum payments will be preferential, since they’re getting to be over $600, but I figure that if the cash will be gone anyway, wouldn’t it make sense to avoid late marks on the credit report too? Or does it make sense to prioritize the cash at hand for necessities, and to stop making payments until we file; since the timeline for filing is in question.

I’ll definitely be asking my attorney, but if paying the IRS wont be preferential and I don‘t have to wait for the bill to be assessed; I’m guessing that I could get the taxes done, send the IRS a check and file Chapter 7 by the end of the month. How long do the creditors typically take before filing suit? Would it make sense to ask for COVID relief, to push the payments for three months?

[justbroke]

Just my opinion, but I don't believe that paying income taxes would normally be a preference. The only way that I know that a Trustee could get to tax payments is if it was a fraudulent transfer. There are two cases out from the 9th Circuit (California, Washington, etc) and the 7th Circuit (Illinois, Indiana, etc), but those were fraudulent transfers of money not belonging to the debtor.

I would talk to a bankruptcy attorney before making large payments to the IRS on the eve of filing. Even if you didn't pay them and the money ended up in the bankruptcy estate, the IRS would get first bite (albeit the Trustee would "earn" their commission).

[FreekingOut]

justbroke it looks like I may need to amend tax returns for 2018, 2019 and I still need to file for 2020. All in all, I may owe thousands in unreported income and recaptured business property deductions. I’m going to talk to a CPA, but if I owe $5000-$10000 in taxes, will it be a problem to pay the IRS before filing Chapter 7? Would that be “preferential” to pay income tax debts before filing?

[FreekingOut]

justbroke understood! Thanks again!

[justbroke]

FreekingOut it is almost always understood that actually paying on the debt over some period of time looks much better than charging and not paying a single penny. If you had these cards for some period of time and have been making your regular payments (minimum or more) then it could be said that you did intend to pay.

It would look really bad if you just obtained a card, took a $10K cash advance, and then never made a single payment. It could look better for that same $10K had you made 3-6 monthly payments before filing for bankruptcy. We are assumed to be insolvent (bankrupt) 90 days prior to filing. So taking large cash advances and making luxury purchase on the eve of filing (3 months) could be construed as not intending to pay.

I'll keep assuming that your attorney says that you should be fine. Sure, a creditor could threaten to file an AP, and many have, but many times that's just puffery. It appears that you had these credit cards for some time and that this debt has built over a period of time. The pandemic is certainly a reason for the increase in dependency on the credit cards. I still don't see any glaring issue here.

[FreekingOut]

Thanks justbroke. I burst into tears after reading just the first sentence. The stress has been debilitating and I never thought it would come to this. The inflated income has always haunted me. I’ve seen people say a million times that it never comes up; but with the other factors in my case and the amount of debt, I’ve been losing myself. I’m going to see it through, everything and everyone I’ve seen talk about these things says that it should be ok. I just needed an opinion from this forum, because the community here seems phenomenal.

I’m current on everything and have signed up for six gig apps like UberEats, Shipt and Instacart. If there’s a chance that I could hold off and pay it down before filing, would it make a difference? I seriously believe that I could pay it off within 3-5 years, but I don’t want to stretch it further and make matters worse if it’s time to pull the plug.

[justbroke]

Welcome to BKForum!

I’m freaking out over a few potential red flags that could trigger an AP. First, on Navy Federal, I racked up $10k from November 2020 to February 2020. It was 90% on eating out every day, multiple times per day; plus bills.

I don't see any issue with this at all. (I think you meant February 2021.) So long as you get some distance between any major luxury charges and cash advances from February 2021, I don't see a problem at all. Making purchases to live -- food, clothing, housing -- is never considered a luxury. In my first filing, I had charges up to and even after filing for food and other living expense. I accidentally kept using the gas card a week after filing, but it was shut down quickly (I mistakenly thought I could keep the card).

I feel that they may say I abused debt, knowing that I couldn’t pay it back, which I would argue that I have $28k in cash that I could have used. Second, if that gets triggered, they may check my application, which might have an inflated income of 20-30%, as I was expecting business to pick up but it didn’t.

I know that for Navy Federal (NFCU) they usually do income verification for limits over $25K. So that's usually their due diligence which should have caught an income disparity. In any event, you based it on your business earnings and that's fine.

Adversary proceedings (APs) -- also known as complaints -- regarding dischargeability of a debt are rare. I don't mean that they never happen, but they happen more rarely than people believe. Especially given the facts of COVID, many creditors have started to reduce credit lines to prevent a run-up of credit in order to survive. The fact that you did not make luxury purchases or take large cash advances makes the probability or an AP less likely.

My lawyer said that they may only look to take $20k in cash and wipe the rest. He said I would likely be able to keep the car and other MD state exemptions.

I assume that your attorney is talking about exemptions. Exemptions cover your personal and real property. Since you have $20K+ in cash in your brokerage and have a car, your attorney will look to protect as much of that as they can. It appears that your attorney thinks they can protect all but $20K of your cash and can protect your vehicle.

Can anyone tell me what may be likely to happen for Chapter 7? I’ve seen lawyers say that Chapter 13s always have objections and I want to avoid them digging too much. What would happen if they argue the inflated income constitutes fraud?

This is likely to happen (as it does in 95% of the cases). You file, the Trustee marks it as an asset case, you attend a 341 Meeting, the creditors file claims (to get paid), you surrender the $20K in the brokerage, the case discharges (60 days after your 341 Meeting), the Trustee sends checks to creditors, the Trustee files a final report (30-60 days after all checks sent out), the Trustee then asks to be removed form the case, the case closes.

I don't think you will have an issue and I'm sure your attorney said the same. Fraud is hard to prove and you did base some of them on your job (when you were employed). Most of those creditors (especially NFCU) have controls which should have kicked in to verify your income.

If your attorney says it's okay, then it's okay. It is what it is at this point. By that I mean that the worse case is "maybe" one of the creditors, NFCU, decides to seek non-dischargeability of the debt. Should they win their argument, then you'd just be responsible for paying that back.

[FreekingOut]

Ok... I just discovered this forum and it’s been awesome. I’ve gone through the search for topics related to my situation. Please give me your take. I’m at the end of my rope, I’m losing sleep, barely eating, I just need some peace of mind. My lawyer seems calm, but it’s early in the process, he’s still looking at everything.

I’m unemployed since Jan 2020, due to COVID closing my job. I have $102k in unsecured credit card debt, spread over five cards, to: Navy Federal($37k), Chase($16k, $16k, $13k) and Citi($20k). I have $28k in a brokerage account. I have a paid off car worth $8k and household goods. I’m working with an attorney and we haven’t filed anything yet, we’ll talk again next week after he reviews my documents. I’ve racked up this debt over 7-8 years and balance transferred it around and paid the minimums, never late. I’m current on everything and have no other debts.

I’m freaking out over a few potential red flags that could trigger an AP. First, on Navy Federal, I racked up $10k from November 2020 to February 2020. It was 90% on eating out every day, multiple times per day; plus bills. I feel that they may say I abused debt, knowing that I couldn’t pay it back, which I would argue that I have $28k in cash that I could have used. Second, if that gets triggered, they may check my application, which might have an inflated income of 20-30%, as I was expecting business to pick up but it didn’t. Plus, I left my FT job so I may have an app with $100-120k income, when it may have been $35k-$85k. I don’t remember which cards I may have done this on, but I did it once or twice. I was trying to build failed business after failed business and always felt that I could and would pay it back. The balance transfers are ending and the minimum payments will kill me, because I have nowhere else to run (my credit is maxed out). My lawyer said that they may only look to take $20k in cash and wipe the rest. He said I would likely be able to keep the car and other MD state exemptions.

Can anyone tell me what may be likely to happen for Chapter 7? I’ve seen lawyers say that Chapter 13s always have objections and I want to avoid them digging too much. What would happen if they argue the inflated income constitutes fraud?