5 months behind - is filing Chap 7 better or worse for credit rating at this point?

[seventytwo]

So, this obviously hasn't been an easy decision...I've been paying compounded interest for years, and due to recent unsteady employment, I'm about 5 (perhaps 6) months behind in all my credit card payments. To make things more difficult, I just temporarily relocated across the country to help care for my terminally ill mother.

I met with an attorney a few weeks ago who said I had an easy case, and that I should file Chapter 7 to get a new start. A few days later, I got "the call" about my mom, and had to wrap up my life in NYC, since I'll most likely be here a while. Anyway my dad and stepdad are now urging me to reconsider, and have offered to front me the cash since my mom is leaving an insurance policy in my name (I owe probably about $14,000).

One of my original intentions for filing was so that I could put my full attention into settling some additional IRS debt. Because of the circumstances, they too are going to have to wait a bit longer.

Now my question: am I just better off filing anyway, since I'm so behind to begin with? What's better for my credit rating (I also have a few various other medical bills, etc. that I just don't have the energy to confront right now). Part of me just doesn't care, since I just get so angry at having every aspect of my life be held accountable to "the almighty credit rating" (I swear, I feel like I'm going to turn into one of those crazy ladies, using cash for every transaction). It would also be REALLY easy to just direct all correspondence to a lawyer, and not have to waste any more energy on this.

Anyway, I need to figure this out pretty soon, so I can take care of any crap relating to this and not be distracted from mom. I really appreciate any input.

[seventytwo]

Ok, after reading up on some peoples' experiences, I think I'm going to go ahead and accept their offer. Other input is still definitely appreciated!

[miss puff]

Seventy two-I am sorry to hear about your mother. That is a really hard blow to take.

I know that it is hard to talk about life insurance policies when the person giving them is still alive but it is a huge factor in what you do. If you file now and discharge all those debts, the Trustee can grab any of your policy that your mom leaves you if she passes in the 6 months following your BK. It might end up that you would have to give it to them in the long run anyways.

Do you have an idea of what that policy might be? If it's a small amount it might not get to the trustees hands. Also, pretty much all back taxes are not discharged in the BK so you would have to pay them back anyways as well.

I don't know much of the laws/rules when dealing with a inheritance. Some might. Hopefully they can help you with some answers. Again, sorry you are going through this difficult time. Good luck

[seventytwo]

Miss Puff, you've confirmed my suspicions, and I really appreciate your response.

I believe the policy is around $40,000, but will of course be subject to taxes. I know on paper even considering moving forward with the BK might seem frivolous to some people, but a lot of it is compounded frustration and depression (not to mention interest) from over the years, and it just seems "easy."

As I think I've mentioned in another post, this all began with arbitrary student loan interest increases on my account about 9 years ago, after a company called Merlin/Plato loans shed their non-profit status (this was before the Feds offered consolidation). Not that it should matter I guess, but I just don't want people thinking I arrived in my current state through spending sprees or anything like that, especially with the amount of the policy.

I guess I just need to take a deep breath and muster the energy to clean up this mess...

[lrprn]

Miss Puff, you've confirmed my suspicions, and I really appreciate your response.

I believe the policy is around $40,000, but will of course be subject to taxes. I know on paper even considering moving forward with the BK might seem frivolous to some people, but a lot of it is compounded frustration and depression (not to mention interest) from over the years, and it just seems "easy."

As I think I've mentioned in another post, this all began with arbitrary student loan interest increases on my account about 9 years ago, after a company called Merlin/Plato loans shed their non-profit status (this was before the Feds offered consolidation). Not that it should matter I guess, but I just don't want people thinking I arrived in my current state through spending sprees or anything like that, especially with the amount of the policy.

I guess I just need to take a deep breath and muster the energy to clean up this mess...

First of all, let me say how sorry I am to hear about your mom's failing health. Losing a parent is very hard, and having to deal with financial troubles on top of that is quite overwhelming.

Some things about inheritances and filing for bankruptcy I can share:
* An inheritance is considered a part of your bankruptcy estate and the trustee has total control over your estate when you file bankruptcy.
* If you know about your inheritance now, if you file for Ch 7 then you MUST list the possible inheritance on your forms as a potential asset.
* If your mom passes away after you file but before your Ch 7 is discharged, then the trustee can take your inheritance and give it to your creditors.
* If your mom passes away within 180 days after the bankruptcy is discharged, then the trustee can still take the inheritance for your creditors.

It does seem risky to your inheritance for you to file under these circumstances if your mom's health is to the point where she could pass away within the next six months.

One thing to think about is if your mom is still considered 'competent' in the legal sense and could sign a change to her will is to work with her lawyer to see if there is a legal way for your inheritance money to be held in a trust or something similar with some stipulation that won't allow you to inherit the money until at least six months after your bankruptcy is successfully discharged. Just a thought. Again, so sorry to hear about your troubles. At least you will be able to be with your mom - that will mean the world to her and you will have these last, precious memories to treasure. Remember we are here for you when the going gets rough - come back to vent any time.

[keepmine]

First of all, I wouldn't file over $14K. Just wait and once the life insurance proceeds are available, settle the debts.

The code is very specific about insurance proceeds and inheritances. This is really all it says. Any inheritance or insurance settlement within 180 days of your filing date {not discharge date} is the property of the estate.

http://assembler.law.cornell.edu/uscode/html/uscode11/usc_sec_11_00000541----000-.html

[SinkingFast]

Sorry about your Mom. I hope all goes well for you and you have many pleasant days with her in the sunset of her days with you.

As others have noted, the Law is pretty clear about your inheritance and filing BK. One way or the other, the Trustee could take the money if you do inherit within 180 days of filing. And, you'll have to settle up with the IRS and State and Local entities that you owe taxes to regardless of whether you file BK or not.

You probably don't have much more damage to be done to your Credit anyway.

We missed 5-6 payments and went thru the Foreclosure process when we finally sold our house. I asked the brokers that were posting here if we really did save anything by selling our house ourselves. NOPE.

I've since read at other websites, once you get 150+ days late on payments, Creditors look at those accts as charged off anyway. Even if they aren't, that's the way potential Lenders consider them anyway.

Sad to say, but your Credit is pretty much shot at this point anyway.

The things you have to worry about now are "Forgiven Debts" which could become tax liable income. Law suits which could lead to Judgements against you. Liens against property you may own, such as a car. Wage garnishments if you do happen to obtain gainful employment.

[lrprn]

Any inheritance or insurance settlement within 180 days of your filing date {not discharge date} is the property of the estate.

Thanks for catching my mistake, keepmine. Posted in a hurry and didn't re-read like I usually do before hitting Submit. That will teach me! Glad you were able to set the record straight so quickly.

[seventytwo]

Thanks again for all the kind words and advice...I'm going to just go ahead and deal with as much as I can of it this week. The good thing is that I'm actually being offered a loan against the policy, so I can settle the big ones fairly quickly. I won't be able to deal with the smaller ones quite yet, but I figure if my credit is already in the gutter anyway, it's no big deal.

I'm going to keep searching this forum for such a thread, but eventually when I do want to start repairing the credit report, are "the powers that be" more forgiving of serious delinquency and subsequent payoffs in a large sum, or if the person just goes ahead with BK? It just seems kind of unfair that I would essentially be punished for NOT filing, if the credit report is going to be just as bad regardless.