Preferential Payments - 90 days or less

[PoorGrammyinBK7]

Because 2 credit cards jacked up interest rates to double what they were (even though we were always on time and paid more than minimum most times) --- we decided to consolidate and pay off 3 credit cards with our available Home Equity Line at a bank. Yes, I know, in hindsight, it was about the STUPIDEST thing we could ever have done but we really did NOT expect to have to file BK and were doing everything we could to get our debts paid off and our payments low to be able to afford them - paying off higher interest cards first, etc.

We were in a lawsuit we thought we would win and unexpectedly, they got a judgment against us, forcing us to BK.

Here are the questions:

We took the loan from the HELOC, made the payments and may now have to file before 90 days are up.

So, how does that work - these are presumed "preferential" and the trustee is able to go after the CC's to get the money back? How is it distributed to creditors? I know the trustee would take a portion, right? Then - as to creditors - would the bank that had the HELOC get paid back some money first since it is a "secured" loan? Or is the money all just distributed evenly among ALL creditors - or just goes to the unsecured? Does anyone know how they distribute funds?

Would this be an action taken by the trustee or would the bank have to object first? Would another creditor be allowed to object to it? Can it still be gotten if we file after 90 days?

These credit cards were personal ones but used for business. More than 50% of total debt is business (about 57%).

Thanks for any insight /suggestions/stories/ support you can give on this!

This message board has been very helpful and insightful and I cannot thank you guys enough for all I have learned here - just wish I had found you a few months ago!!

PoorGrammy

[deafbroke]

I would talk to an attorney but if you do file, do not reaffirm the house. If they do say it's preferential they will get the money back from the CC and distribute it to creditors. That's not your problem. Don't know how they will treat the cc's for business. Attorney is the best way to go. I filed pro se and screwedi t up so bad I owuld have had to pay a crapload of money and lost property but hired an attorney to ammend my filing and it saved my butt.


DB

[PoorGrammyinBK7]

deafbroke - thanks so much for your reply.

We do have an attorney but he's on vacation this week. He wanted us to wait till the 90 days is up when we last talked to him, but said we don't have to. We may not be able to do that due to new court action. I think these would be preferential and I know that's between the trustee and creditors.

We are not behind on any payments except one credit card - and that is because they tacked on interest after we paid it off. We will probably stop paying the others now though.

We have a small balance on two other CC's and two old accounts that were medical and some legal bills from the lawsuit (most of that was paid). Then we have the 3 CC we paid off with the equity line (I assume they would be back in the "pool" of creditors to re-distribute the funds) and bank (secured by home) and the big judgement.

I just wondered if there is a "guru" or other experienced person (trustee/paralegal) who would know how that would be distributed by the trustee. I guess it would make us an asset case which would probably drag it out longer.

This is all just sooooo crazy! I hate it. Never imagined we would be going through this. But we are gonna have to do it, so we do what we gotta do, you know? Over 40 years of excellent credit will be shot to hell.

But there are more important things in life - like loved ones, health and quiet enjoyment of life.

PG

[AngelinaCat]

PoorGrammy: We are kindred spirits, although unlike deafbroke, we DID hire an attorney beforehand and are now paying big time for HER screw-up and mistakes in not properly educating us before filing.

The lookup is 90 days minimum, and could well be 180 days. Might even be two years. The longer you can delay in filing, the better it is for you.

If the Trustee decides that the payment was preferential, he/she can sue the receiving entity, even a CC Company, to get that money back and distribute it 'evenly' amongst your creditors. There is a pecking order. IRS will always be first--that is where ours is going, then next will be the SECURED creditors, like home, or car, after that, as I understand it, unsecured debt, largest amount to lowest. Though I think by then it is fairly 'slim pikins'.

Our situation involves what is considered an 'insider repayment' to our son-in-law, and god-daughter. We have gotten a compromise from our Trustee, and will be able to repay what the Trustee is asking, about 3/4 of the original amount, from a retirement stipend that we get at the first of the year. That way, our folks will not be sued/penalized for what we repaid to them in 'good faith'.

I hope all works out for you. Please search on our 'nics' , especially this thread for more details:

http://www.bkforum.com/showthread.php?t=25506

Our best~~~

[AngelinaCatHub]

What Ms. Cat states is true but remember, we are now paying double our sins. In that the IRS WILL get their due, I wipe it out as payment to uncle. 'Hub

[AngelinaCat]

Yes, 'Hub is correct. We have repaid the loans to our folks, and now must repay $XXXX.XX to the Trustee, which will in the end go to the IRS, on which we must pay Capitol Gains tax from the sale of the Mortgage Deed. S*I*G*H* We are so 'in-the-hole' over the original land sale 3 years ago, it seems like we should be able to declare a 'Capitol Loss'. Damned sure ain't made us anything.

[PoorGrammyinBK7]

Thanks MsCat and Hub for answering my post! You guys have really been through it, haven't ya?

Thankfully, we do not owe the IRS anything (as far as I know anyway).

If what you say is true, the "scenario" I was thinking of may actually happen - the trustee goes after the preferential payments to the credit cards and the secured creditor (bank - HELOC) gets paid 1st. What about the other secured creditors - like the cars and 1st mtg? Do they get anything if there is any to get? And then the unsecureds? When does the trustee take his - right off the top? What percentage - do you know?

This could actually be good if he does that. Would lower our debt with the bank.

We probably aren't gonna be able to wait. Just cannot keep dealing with this crazy guy. Need to stop him in his tracks if possible. Gotta get our life back. He is dominating it right now!

Happy 4th of July by the way - we are still a living in a free country (well, sort of)! A lot to be thankful for - even in the midst of all this!

Thanks again for replying...

PG

[AngelinaCat]

My understanding is that anything gotten back from the 3 CCs will go to the secured loans first, on a more-or-less even basis. Everything is supposed to be divided up evenly, but the secured loans get first dibs. Whatever else trickles down from that, I don't know. But once you file, then it seems to my very inexperienced eye, that you will be in fairly good shape.

Have a good rest of the 4th of July weekend. We have a thunderstorm coming in, so we are set to enjoy some of God's fireworks for the evening.

My best~~~

[fltoo]

I did the same thing. Paid off cc debt with HELOC. Dumb, dumb, but I never contemplated BK. Being in FL, my house was exempt. Still kicking myself.

This is not a fraudulent transfer with a look back period of two years.

Believe deafbroke when she says this is not your problem. It is a problem for the secondary lender and the cc companies.

File whenever you want to and let them sort out the mess.

As was stated by someone else here, be careful of erroneous info here. Always check with your attorney.

[PoorGrammyinBK7]

Thanks fltoo - appreciate your reply. At least I know we aren't the ONLY ones who paid off CC's with a HELOC - still kickin' ourselves too - lost that all equity which would have been exempt - dumb.

[deafbroke]

I did the same thing. Paid off cc debt with HELOC. Dumb, dumb, but I never contemplated BK. Being in FL, my house was exempt. Still kicking myself.

This is not a fraudulent transfer with a look back period of two years.

Believe deafbroke when she says this is not your problem. It is a problem for the secondary lender and the cc companies.

File whenever you want to and let them sort out the mess.

As was stated by someone else here, be careful of erroneous info here. Always check with your attorney.

First off, I am not a "she" lol, I'm a he.

Now, the court action you are talking about, is it a creditor going to court to get a judgement against you? Is it for wage Garnishment? You are a few weeks from the 90 days period so if the reason for the court action is garnishment or a judgement those will both be stopped the day you file bankruptcy. I had a judgement against me to garnish my wages. They were garnished for about 6 months before I filed. Once I filed the garnishment stopped dead in its tracks. I didn't go to the court case for the garnishment and it wouldn't have helped. Wait for your attny to get back and go over it again with him/her and do what they say. See what it will cost for the attorney to wipe out the judgement.

As far as how much the secured and unsecured creditors get that is thwe trustees problem. Don't worry about it. You'll have enough on your plate just getting through it let alone worrying about that stuff. If you owe family money then just make them a priority to pay back once the bankruptcy is over. Don't feel bad for the creditors, secured or unsecured. They sure as hell won't feel sorry for you when they decide to take you to court. Your only concern at this point is getting thngs in order to file and get filed when your attorney tells you to. What happens after that is what you hired your attorney for.

DB

[PoorGrammyinBK7]

Don't owe family...

Hi deafbroke,

Thanks again. I don't owe family.

The only reason I asked the question is if the trustee gets the money back from the credit cards I HOPE he will give some of it back to the bank that I borrowed from on the home equity, which I will still have that debt if we choose to stay in the home and reaffirm. Unless you could reaffirm the 1st and not the 2nd, but then wouldn't they foreclose?

We need to stay here if we can - but are still deciding.

[deafbroke]

Hi deafbroke,

Thanks again. I don't owe family.

The only reason I asked the question is if the trustee gets the money back from the credit cards I HOPE he will give some of it back to the bank that I borrowed from on the home equity, which I will still have that debt if we choose to stay in the home and reaffirm. Unless you could reaffirm the 1st and not the 2nd, but then wouldn't they foreclose?

We need to stay here if we can - but are still deciding.

It's not in the banks best interest to foreclose. It's costly and likely with the current housing slump they won't get what is owed for the house at foreclosure, and that is one reason you do not want to reaffirm.

You don't need to reaffirm either and you can stay there. It's called a ridethrough. It's not in your best interest to reaffirm. If you have the 1st and heloc from the same mortgage company they will want you to reaffirm both. You are not leagally required to reaffirm either but if you do you are putting yourself in a position that can hurt you down the road of they raise the interest to the point you can't afford it. At that point if you walk away from the home after reaffirming, and they foreclose, and then don't get the amount at foreclosure to cover what is owed they can get a deficientcy (sp?) judgement against you for the difference and you will have to pay it. Not reaffirming, you will owe them nothing if they foreclose.

DB