Paying off creditors before filing

[sean]

OK. I've heard people say that there is no reason to pay creditors if you are planning to file BK and I certainly understand that.

But I'm thinking about what will happen after filing. I know that some companies will blacklist you if you've included them in a BK. So does it make sense to try to pay off some of your creditors before you file so you can have a better chance of getting credit with them in the future?

Capital One, for instance, is one of my lower balances and one that I could probably pay off if I didn't pay my other CC's. When I had some credit issues years ago (late payments, no BK or anything), Capital One was pretty good to me. My first car loan came from them and was at 12%, which wasn't bad considering my credit score at the time.

I'm concerned that if I don't pay off some of my creditors, they'll all blacklist me and I won't be able to get any credit after a BK.

[GreenInkOnPaper]

The trustee will not like your having paid "some" of your creditors, and if you pay off more than $600, that's considered preferential payments and the trustee can make your creditor give that money back ( to the trustee, not you.) Yeah, some companies will blacklist you, but Cap 1 is not the end-all of credit/loan companies. You WILL be able to secure credit after BK, it'll just take a little time.

[nervousss]

I am pretty sure if you have a zero balance, they are still likely to close your account when they find out you filed BK.

There is an entire section on the website about rebuilding credit after bk, and a stickied thread there that tells what credit cards are BK friendly. You should go check it out!

[sean]

Thanks.
I wasn't thinking that I'd be able keep the account. Its just that if we have to surrender our vehicles, well be needing to finance a used car after the bk and I thought cap 1 might be a good option.

As far as preferential payments, does that apply to medical bills also?
We have a $1200 bill from the hospital and its the hospital that my wife works for. I'm concerned that if that is discharged, it could be bad for her employment.

[PoorGrammyinBK7]

How long can you wait to file then? If you have paid $600 or more (accumulated over the last 90 days before filing) to ONE creditor, while not paying others, that is preferential. So to do this you would have to drag it out the way I see it. But I am not a lawyer. I see your concern about your wife's job. Technically, its against the law for an employer to fire a person because they had a BK, but we all know they can probably find a way around that.

[hopechange]

Poor Grammy

Does this 600 rule apply to things we want to keep? I stopped paying everything except house and car and cellphone (its my only phone)

Does the 600 rule apply to those things?

How long can you wait to file then? If you have paid $600 or more (accumulated over the last 90 days before filing) to ONE creditor, while not paying others, that is preferential. So to do this you would have to drag it out the way I see it. But I am not a lawyer. I see your concern about your wife's job. Technically, its against the law for an employer to fire a person because they had a BK, but we all know they can probably find a way around that.

[justbroke]

Does this 600 rule apply to things we want to keep? I stopped paying everything except house and car and cellphone (its my only phone)

Payments to secured creditors, is an exception to that rule. In other words, payments on property, such as homes and cars, doesn't count.

As for your cellular phone, that's considered a utility and not an unsecured line of credit.

Remember, this "preferential payment" is all about leveling the playing field for unsecured creditors. That is, that Citi Mastercard shouldn't be getting paid lots of money when you're ignoring Home Depot.

[Over our heads]

What I was advised to do was to make an arragnement with the billings manager if I was insistent upon paying a medical bill. We owe the children's hospital 3k. Since our child is SN and will always be needing their services at least until she is 18, we don't feel right about stiffing them. Especially since she had surgery after we decided BK was our path to take. You can pay them 500$ and then make other none paper arrangements for after you are discharged, but you still have to list them as a creditor.

[magyar123]

Well a real heartless A$$hole of a trustee might consider those payments to the hospital as preferential.

[lrprn]

What I was advised to do was to make an arragnement with the billings manager if I was insistent upon paying a medical bill. We owe the children's hospital 3k. Since our child is SN and will always be needing their services at least until she is 18, we don't feel right about stiffing them. Especially since she had surgery after we decided BK was our path to take. You can pay them 500$ and then make other none paper arrangements for after you are discharged, but you still have to list them as a creditor.

If you pay the hospital more than $600 total in the three months before filing wihtout paying like amounts to your other non-secured creditors, then your trustee can consider that a preferential payment and demand the hospital give it all back. And it turns your simple Ch 7 into an asset case which delays your closing.

Here's what most folks do in your circumstance - they file Ch 7, wait out the 3-4 months until their case is discharged and closed, then begin to pay back the hospital. You can pay back anyone you want after your Ch 7 is over.

[epiphany]

If you pay the hospital more than $600 total in the three months before filing wihtout paying like amounts to your other non-secured creditors, then your trustee can consider that a preferential payment and demand the hospital give it all back. And it turns your simple Ch 7 into an asset case which delays your closing.

Here's what most folks do in your circumstance - they file Ch 7, wait out the 3-4 months until their case is discharged and closed, then begin to pay back the hospital. You can pay back anyone you want after your Ch 7 is over.

lrprn, can you elaborate on this? I have always been under the impression that if I paid an unsecured creditor 600 dollars or more during the 90 day period before my filing that they could indeed go after the payee to collect the funds, but that I would be out of it....it would be between the trustee and the party that collected the money.

Maybe I've misunderstood....how would that turn my chapter 7 into an asset case if it wasn't one already?

Thanks,
ep

[lrprn]

lrprn, can you elaborate on this? I have always been under the impression that if I paid an unsecured creditor 600 dollars or more during the 90 day period before my filing that they could indeed go after the payee to collect the funds, but that I would be out of it....it would be between the trustee and the party that collected the money.

You understood correctly, epi. When the trustee determines that a preferential payment has been made, the trustee then asks for the money back from the unsecured person or company that was paid more than $600 total before filing. It doesn't affect the filer personally - the money is taken back from the creditor or collector, not the filer.

However, the money that is returned to the trustee turns the Ch 7 into an asset case. The asset is the money the trustee got back from the creditor/collector. The other creditors can then file claims for a piece of that returned money - that's what extends the filer's Ch 7 discharge and closing.

[catleg]

If the money paid to the hospital is for "contemporaneous service" they have a grounds to defend against the trustee's claim of preference. So as long as the bill is for recent services you're probably in the clear. I think from a public policy perspective it's unlikely he would go after a hospital to pay other unsecured creditors .. it would make him look bad if the media got wind of it.

I wouldn't worry about the other creditors..I stiffed everybody in my first chapter 7 and the only one who blacklisted me was Amex. And to hell with them as far as I'm concerned. If you have money spend it on yourself or your house, some kind of necessities, dental work, repairs, food, etc.

[epiphany]

You understood correctly, epi. When the trustee determines that a preferential payment has been made, the trustee then asks for the money back from the unsecured person or company that was paid more than $600 total before filing. It doesn't affect the filer personally - the money is taken back from the creditor or collector, not the filer.

However, the money that is returned to the trustee turns the Ch 7 into an asset case. The asset is the money the trustee got back from the creditor/collector. The other creditors can then file claims for a piece of that returned money - that's what extends the filer's Ch 7 discharge and closing.

Okay, makes sense. Thanks!

ep