What is the exact definition of "insolvency"

[shabam]

The actual definition of insolvency is whether your debts exceeded your assets.

For example, if I owed $50k yet only had $30k worth of assets, I am insolvent.

[frogger]

Sounds like the OP dug a hole and is trying to figure out how to climb out of it... while, at the same time... continuing to dig!

First thing to do when you're in that hole is to quit digging. It took me some time to figure that out too.

[swampwiz]

BINGO! You took grant money to build a home, didn't do it, now you're hiding from the government because you know you have committed a crime.

I took $63K in grant money, and had already spent $40K on the home (for the homesite, clearing the homesite, putting in a culvert, a small retainer for a construction advisor to give me an estimate for the total building costs, hiring an architect, etc.), and have $36K in cash (just sold to get out of the market today to lock in my $20K loss.) So I will put $23K of that into one of my checking accounts that is only to be used for homebuilding (and would be liquidated upon bankruptcy, if it were to come to that.) So I'm back into legal status. In fact, that last $23K earned me about $8K in profit, so there! (i.e., the net loss on the other portions of the investment took a real bath of $28K.)

On a side note, I would have a hard time believing that with all the shananigans that was going on in Wall Street, CDO's, mortgage brokers, etc., that saying that someone who thought that parking the money into the stock market (a standard index fund, not a wild volatile stock) was legal was actually committing a crime, when at the same time, the POTUS was saying that we should invest our Social Security funds in the stock market as well. Perhaps the person made a small error of judgement (that could very well have been spelled out in the 20 pages of legal documents.)

As for the grant itself, a bankruptcy that would require the sale of the property (which it would, obviously) would nullify any requirement to pay back the grant for not building the home. BTW, the total grant was $112K, of which $49K went to paying the remainder of the mortgage on the destroyed property, leaving a cash payment to me of the $63K. The penalty for not building the house would be the difference between 2 different options (plus interest), with the other option (i.e., someone who would not buy a home in the state) in my case being about $92K less (plus interest.) IOW, if I went bankrupt and lost my homesite, I would not have to repay the $92K. Obviously, I'm either going to build the house (in which case I would not have to repay the $92K), or go bankrupt, in which case I would also not have to repay the $92K.

[swampwiz]

The actual definition of insolvency is whether your debts exceeded your assets.

For example, if I owed $50k yet only had $30k worth of assets, I am insolvent.

Then by that way of thinking, anyone who is unemployed who has $2K in his checking account, but $5K of existing debt, and takes the offer of a convenience check of $10K would technically be insolvent and committing fraud? In that case, shouldn't there be a warning on the check that says that if you are unemployed, you should not be cashing this check?

[backtoschool]

Then by that way of thinking, anyone who is unemployed who has $2K in his checking account, but $5K of existing debt, and takes the offer of a convenience check of $10K would technically be insolvent and committing fraud? In that case, shouldn't there be a warning on the check that says that if you are unemployed, you should not be cashing this check?

Actually, the scenario you mention would probably cause an AP by the issuer of the convenience check if the person took the convenience check and filed bankruptcy and didn't wait at least a year, possibly more to file.

The creditor would argue that the debtor knew that they were insolvent when they took the check.

[swampwiz]

I hate to say it, but this whole story sounds like a web of manipulation, cheating, and opportunism at the expense of others. OP, I can't believe you're seeking advice after doing all of this. You may as well ask us for a loophole in the system after robbing the bank.

The Katrina fund provided you with $92,000 for a HOME. God, I can't believe the rest of the country struggles to pay their mortgage, and you got this grant and blew it.

I didn't blow it. $49K of the grant went to paying off the mortgage on my destroyed home (so I didn't have to declare bankruptcy THEN), and the rest went to me to rebuild - something I've been fixated on doing, even to go so far as to buy a homesite and hire an architect and construction manager to assist me.

As for the other debt, $35K went to buying replacement items (that would be covered by the SBA loan IF I built the home, that I always intended to do.) There was about $40K in general debt about the time of Katrina that got rolled over, and mish-mashed going from one 0% or low interest rate balance transfer offer to another (I think you all understand that.) I probably racked up about $16K in finance charges during the last 2 years, and of course, the $20K loss in the stock market. This is the $111K that I am upside down on, if you separate out the $23K remaining from the grant, and the lot and the small work done on preparing to build the house.

As recent as 2 years ago, I still had about $40K in the market, from which I have been steadily drawing down to live. The cash advances I took to put into the market a year ago actually made money, but I had to bleed it off to support the debt and living expenses. Now at what time I should have considered myself insolvent, I have no idea. My hope all through this time was to find a job making only $40/hr - 1/3 off the rate I used to earn a few years back - which I started in earnest about 1-1/2 years ago. I had no idea that I would still be in a position that I could not find such work 1-1/2 years later. With such a job I can become solvent again as I could support the debt payments, so at what time should someone consider his job prospects so poor that he becomes insolvent?

And about the payments, what was I supposed to do when I had a 3.99% "life of the loan" deal with Chase, that decided to almost triple the minimum payment (by making the terms of this loan pay off much quicker, they have basically screwed me.) Or what about Bank of America doubling the payment as well? Who can forsee that? I closed every account for a creditor that raised the interest rate.

Anyway, I've got another job interview on Monday (for only $35/hr - see, I'm already cutting my rate.) The employment agent (i.e., bodyshop pimp) says that the client is being so cheap with the rate that most folks with the skills that the client wants would want to not work so cheap (and being in Utah scares away a lot of folks as well), so they shouldn't be very picky. Wish me luck - with this gig at least, I'll be in a position that if I were to get laid off, the idea of insolvency should no longer be an issue.

[frogger]

On a side note, I would have a hard time believing that with all the shananigans that was going on in Wall Street, CDO's, mortgage brokers, etc., that saying that someone who thought that parking the money into the stock market (a standard index fund, not a wild volatile stock) was legal was actually committing a crime, when at the same time, the POTUS was saying that we should invest our Social Security funds in the stock market as well. Perhaps the person made a small error of judgement (that could very well have been spelled out in the 20 pages of legal documents.)

You can believe that Wall Street, CEO's, Brokers, and the rest are going to be took care of by Congress and the Prez. Sure, there will be a few lambs that get slaughtered, but it won't be any of the big guys.

The rules that apply to them don't apply to you. They are special.......

That being said, looks like you have stepped into some quicksand. Now that you are finally coming together with the complete story, things are starting to make more sense.

You've got some planning to do. You'll get a lot of answers here, but you need to find a good bk attorney and start laying the groundwork for what is coming. If not, I'm afraid that you'll not only be insolvent, you'll be broke, you'll be homeless, and you'll have fraud charges looking at you.

[swampwiz]

Actually, the scenario you mention would probably cause an AP by the issuer of the convenience check if the person took the convenience check and filed bankruptcy and didn't wait at least a year, possible more to file.

The creditor would argue that the debtor knew that they were insolvent when they took the check.

OK, so you are saying that if it would be a year since the writing of the convenience check, then there would not be an issue. My last major cash advance / balance transfer / whatever was November 2008. (I had something like $6K in nickel and dime cash advances up until March 2009.)

What about overdraft protection? Would using overdraft protection when someone was "insolvent" be fraud?

I had a line of credit that was tied into my checking account that I got up to about $8K. Now, this $8K bounced around from $8K to $4K as I would bleed off $4K from my mutual fund every month to support living and the debt service, and gradually whittle back up to the $8K as the automatic payments to support the debt would take place.

And as for any debt that could be considered as having been done when insolvent, if there would be enough assets around to satisfy those debts (in my case I have the complete $63K grant - in cash or the homesite - which should be considered an asset so long as I would build the home), then it would seem that those debts would take precedence, and so long as those debts were paid off, then there would not be an issue of insolvency "fraud".

[swampwiz]

You've got some planning to do. You'll get a lot of answers here, but you need to find a good bk attorney and start laying the groundwork for what is coming. If not, I'm afraid that you'll not only be insolvent, you'll be broke, you'll be homeless, and you'll have fraud charges looking at you.

I won't have a problem with fraud from the grant. I did everything I could to try and get a house built, and the whole principle is there. Also, I should not have a problem with the $35K that I spent on replacement items that I expected the whole time to be covered with the eventual SBA loan.

Perhaps I will have a problem with taking a cash advance and basically investing it the market. I have had a long history of taking out such advances when I felt that the market was good, and I made money every time. I didn't this time (at least for those advances that I had from around 2005.)

How many folks going into a small business max out their credit card to start the business? If the business were to fail, wouldn't they all be guilty of insolvency fraud? The small businessman is supposed to be the lifeblood of the country - are they all scam artists? What about the vaunted investors? Aren't they supposed to be equally the backbone of the economy? What about all the day trading folks who got going during the Tech Bubble of the late 90's? There were countless BK's because folks got overextended with unsecured debt as the losses mount.

As for advances for living and paying finance charges, I was robbing Peter to pay Paul. How many countless folks have done that?

I didn't sock away any cash. I didn't set up a Swiss bank account. I was just trying to, as our current POTUS would say, "keep the dream alive". All I needed was the $40/hr job - something I was teased with every few months with an interview that I thought went well.

Now, for my minor "crime", how long at a Club Fed could I get? Me and how many other folks? Heck, it would be free room & board, I could continue to study my software development skills, and my 401K would continue to build.

[swampwiz]

I don't understand why the 30k in stocks can't be sold and used as a down payment on a home.

I certainly don't see where the 120k "free cash flow" is coming from. You still owe all the money to your credit card advances that you used to play the stock market.

I have no idea how you can have 92k and be "living in your car".

You also stated that you are living in a hotel and that that costs about $750 a month, is that where the 92k went?

Not understanding how the "financial value" of getting a home loan for a home that is not built yet, in a depressed housing market will be 100k.

Although I think you are a troll, I have been answering your posts, since some of the questions might be questions that others do searches on.

The $120K cash flow would come when I would build the house. I would get $200K from the SBA to build the home. I would spend about $165K on the house, and since I would be contracting it out myself (with the help of a paid advisor), I estimate that the value of the construction to be about $190K. Add that to the $40K for the homesite (which may be a little low as I think it could be worth $45K or even $50K, but let's presume it would only be $40K), would result in the total property being worth $230K. I could get another mortgage (in which the SBA would subrogate (sp?) itself into a weak 2nd position, for the $30K easily, and perhaps even more, since it would be in the first position, and get a $30K loan for the contents from the SBA (for items that I have already purchased.) If the project would end up costing more, I could get that much more for the other mortgage.

So the net would be $200K + $30K + $30K - $165K = $95K. Add that to the $36K cash I still have now, and I would have $130K cash on hand. Since I would have built the house, the tenents of the state contract would have been met, and hence no payback required. I pay off all the debt (maybe I keep some of the debt that is at guaranteed low interest), and have my home with a total note of about $1100. OR maybe I don't get the other mortgage, and keep $20K in unsecured debt. Problem solved!

Now, if I were to ever be delinquent on my debt service, I would not get the SBA loan for either the home or the contents, and the whole house of cards would fall down. This is why I have been current and desperately want to stay current. Now does everyone understand?

[2manybills]

The $120K cash flow would come when I would build the house. I would get $200K from the SBA to build the home. I would spend about $165K on the house, and since I would be contracting it out myself (with the help of a paid advisor), I estimate that the value of the construction to be about $190K. Add that to the $40K for the homesite (which may be a little low as I think it could be worth $45K or even $50K, but let's presume it would only be $40K), would result in the total property being worth $230K. I could get another mortgage (in which the SBA would subrogate (sp?) itself into a weak 2nd position, for the $30K easily, and perhaps even more, since it would be in the first position, and get a $30K loan for the contents from the SBA (for items that I have already purchased.) If the project would end up costing more, I could get that much more for the other mortgage.

So the net would be $200K + $30K + $30K - $165K = $95K. Add that to the $36K cash I still have now, and I would have $130K cash on hand. Since I would have built the house, the tenents of the state contract would have been met, and hence no payback required. I pay off all the debt (maybe I keep some of the debt that is at guaranteed low interest), and have my home with a total note of about $1100. OR maybe I don't get the other mortgage, and keep $20K in unsecured debt. Problem solved!

Now, if I were to ever be delinquent on my debt service, I would not get the SBA loan for either the home or the contents, and the whole house of cards would fall down. This is why I have been current and desperately want to stay current. Now does everyone understand?

So if you are still current, that's why your credit score has not started to drop yet. What you want to do is get a TOP NOTCH - well recommended attorney in your area. You have a lot of prebankruptcy planning to do and the smartest thing you can do for yourself is take advice from a good lawyer (NOT A MILL ATTORNEY) that knows and is familiar with the courts, the trustees, etc. in your area.

[backtoschool]

OK, so you are saying that if it would be a year since the writing of the convenience check, then there would not be an issue. My last major cash advance / balance transfer / whatever was November 2008. (I had something like $6K in nickel and dime cash advances up until March 2009.)

What about overdraft protection? Would using overdraft protection when someone was "insolvent" be fraud?

I had a line of credit that was tied into my checking account that I got up to about $8K. Now, this $8K bounced around from $8K to $4K as I would bleed off $4K from my mutual fund every month to support living and the debt service, and gradually whittle back up to the $8K as the automatic payments to support the debt would take place.

And as for any debt that could be considered as having been done when insolvent, if there would be enough assets around to satisfy those debts (in my case I have the complete $63K grant - in cash or the homesite - which should be considered an asset so long as I would build the home), then it would seem that those debts would take precedence, and so long as those debts were paid off, then there would not be an issue of insolvency "fraud".

In your case you need to wait at least until March of 2010, ie a year from your last cash advance. "Nickel and dime" cash advances that add up to 6k in such a short period of time will be seen the same as one large 6k cash advance.

The overdraft lines will be treated like cash advances in terms of intent if you were overdrafting by such large sums and it was never to buy necessities but was instead to day trade. You have awhile before you can file without triggering AP's from your bank and credit card companies.

[swampwiz]

In your case you need to wait at least until March of 2010, ie a year from your last cash advance. "Nickel and dime" cash advances that add up to 6k in such a short period of time will be seen the same as one large 6k cash advance.

The overdraft lines will be treated like cash advances in terms of intent if you were overdrafting by such large sums and it was never to buy necessities but was instead to day trade. You have awhile before you can file without triggering AP's from your bank and credit card companies.

No, the overdrafting was done to live on and do the debt servicing. I wanted to preserve the stock market investment (especially since during March the market hit the lows) - which was good decision in hindsight.

What about the overdrafting of $4K a month, but balanced with paying it down with $4K/month as well, so that the net? I've been doing a similar thing with paying down a credit card balance by $1K or so, and then using it until it would get back to the limit - just so I could have a way to pay for things long distance and on autopay (like for the storage for my stuff that I recovered from the hurricane, and have been buying, etc.)

OK, so if I would wait until May 2009 to actually file, I should be OK?

[frogger]

OK, so if I would wait until May 2009 to actually file, I should be OK?

You throw questions out, you ask for advice, but you are not listening. Go back and re-read the posts. How many times have you been told:

FIND A GOOD BK ATTORNEY!

If you're going to ask for advice, please listen to the answers.

[2manybills]

you throw questions out, you ask for advice, but you are not listening. Go back and re-read the posts. How many times have you been told:

Find a good bk attorney!

If you're going to ask for advice, please listen to the answers.

right on frogger!