Can you selectively apply Bankruptcy so as to not ruin accounts in good standing?

[Scaron]

Here's the deal..... I'm ready to confront this old debt issue that's been around my neck but, I'm not certain if bankruptcy is right option. After interest and fees and other BS my bad debt that's outstanding is around 45,000.... the original debt was more like 15 to 20,000 but it grew when I lost my job 4 years ago. After moving on with life and attempting to deal with the debt that I have that I was able to pay off (I've even been approved for a new Credit Card though I don't use it) I'm coming down to paying off things that I was never late on in the first place so, those account would remain open so, if I were to file bankruptcy would it also apply to things that I've remained in good standing with? I'm only interested in protection from this old debt that I can't possibly pay off. Is it possible to selectively apply the protection or will everything have to be covered?

[direred]

Nope, you can't be selective. Everyone has to get the same treatment.

[flacorps]

One of the goals of the BK law is to afford relief to creditors from "preferential" payments by debtors to "friendly" creditors (or creditors they deem otherwise worthy). The relief is afforded via "lookback" provisions that allow "preferences" to be voided if they happened within certain time periods preceding the BK filing.

I'm not an expert in the time periods, and haven't looked at them in a long time. I believe it's 90 or 120 days as long as family isn't involved (then it's a year).

What does this mean? It means that you can pay off some of your creditors, provided you're not going to declare prior to the end of the period during which the payment would be voidable (if it's voidable, the other creditors can force the creditor who got paid to give back the preferential payment. The payment would then become part of the BK estate, to be distributed equally amongst the creditors).

So if you're planning, the real question becomes which creditors may be "BK friendly" and on what terms. Some creditors you BK on will turn right around and give you credit after your BK. Why would anyone pay them? Other creditors won't give you credit as long as a BK appears on your reports. Why pay them either? It's the ones who are BK friendly, but not if they've lost any money on you that you might want to consider paying off in the months before the countdown to BK moves into the red zone.

Back in the day, the advice was pay off a card or two before BK so that you would have a card or two after BK. That advice must be tempered in the era of automated scoring updates and datamining, etc. Today's large players (Chase, Citi, Cap1, Discover, Amex, etc.) are going to know instantaneously if you BK, and they will close your accounts. Smaller, independent issuers like small banks and credit unions, store cards and gas cards associated with smaller chains are less likely to subscribe to the kinds of CRA services that would let them do that. YMMV, but there are resources on various boards that can help you determine who is likely to do what about your BK.

[Lecasbas]

About 3 years ago I talked to a local lawyer about filing bankruptcy. He told me that a person could "affirm" accounts that the debtor wanted to keep.

Is this information still correct?

In addition, does the BK court verify the list of Bad Debts you compile? If it doesn't, couldn't a person just not list the account he/she wants to keep?

[willingtocope]

Yes, you can still affirm certain debts. That is usually applied to "secured" debts...like your house. I'm not sure it works for unsecured debts.

You can indeed leave things off your schedules. However, they're still included. Chance are if one of those items happens to check your credit reports later, they'll close the account and include themselves. And, the BK trustee would probably take a dim view of this if they thought it was intentional.

If you don't qualify for a BK 7, and you're forced to do a BK 13, this is all kind of moot anyway. Everybody gets paid...

[momof5]

It does happen for unsecured debt on occasion. When I filed BK7, my lawyer called and told me that Sears offered to re-affirm my debt, but here was the deal....the acct was closed. After I paid off the amount incl in BK, they would reopen the CL and I would have a viable account after BK.

I wisely chose, no. In the end, Sears was sued by the BK trustees across the country. What really happened was that after the consumers paid off the accts, they asked Sears to re-open them. They were immediately declined citing "BK on file"! Sears had to repay every single BK consumer the amount that they paid.

Even if a bit OT, understand this, the OC will not leave the account open in BK. If I were you, I would pay off the acct and close it by consumer. This saves the TL and it will stay for 10 yrs. After that max period of time expires (for preferrential treatment), then file the BK.

My question to you would be.... is that debt that you are so worried about past SOL???

[rella5]

Think long and hard and way down the road before filing BK. Especially CH13. If you need to protect secured debt like homes, cars, tools or equipment to make your living then it may be necessary. If your big debt is unsecured i.e. credit cards, and you have the stamina, it may be better to take verification, dispute, and finally settlement as far as you can. I speak from experience when I tell you I wish I had done that. CH13 can be a blessing but you are under the control and scrutiny of the trustee for the length of your plan.

BTW, I have 3 cards,all major retailers that have never been closed. They did not file claims when we filed BK in 2004. They were small balances so I paid them off (in my ignorance). They show on my CR as open, active but $0 balance. go figure. So the answer to your question is, legally everything should be included, but there are creditors who do not file claims and may not close your acct automatically. BUT you would be in trouble with your trustee if you used that credit while in BK w/out courts permission.

[Lecasbas]

Original quote by rella5

legally everything should be included,

If you have one or more accounts paid, you should still report them in your BK schedule? That would seem surperfluous.

If all of your accounts, paid or not, are listed in your schedule, then what do you use for daily living expenses? Some places, like motels, pretty much require credit/debit cards.

[willingtocope]

If you have, say, a gasoline card, with a $0 balance...then you don't have to include it on your BK schedules....but...chances are they will find out about the BK and close the account anyway. If you used, say, a Best Buy card to buy a big screen TV in the last 6 months and paid it off so you could keep the TV post BK, and you didn't list THAT account...and the BK trustee found out about it (which they will), you'd be in trouble.

As to what to do instead of carrying cash post-BK...get a checking account with a debit card, That's effectively a guranteed MC or VISA and use that. Of course the problem is you have to have money in the account to use it.

[rella5]

I can only speak for my situation. My atty asked for acct info for every credit card. He did not ask for old, paid CLOSED accts., just open active $0 balance or not. It was up to them to file a claim or not.

[Scaron]

I can only speak for my situation. My atty asked for acct info for every credit card. He did not ask for old, paid CLOSED accts., just open active $0 balance or not. It was up to them to file a claim or not.

Would it make a difference if the accounts that I want protection from are closed and charged off and with collectors?

Everything else is in very good standing. Even my Jeep (which I've never been late on) will be paid off in 4 months.

I'm more interested in 13 than 7 but, if the end result of having to close good accounts is going to be the same then I guess I would try at least for 7.

The main reason why I'm considering BK is that 1 of these bad accounts is I fear getting ready for Wage Garnishment (they've taken my state income tax 2 years in a row) and though I can settle the amount that they are looking for my fear is that the same thing may start to happen with the others and I would hate to have wasted time and money on it if the end result will be the same.

The other side of me says to fight and deal with each one of these as them come along. Perfect example is that I have one that will fall into the SOL come July (in Michigan its 6 years and it has been 6 years in July since my last payment) and this will mean that I then only have to deal with 3 more.

[flacorps]

How many of your creditors have judgments and how many don't?

You need to do the math on what they could actually expect to get with a garnishment. It may not be too much after you apply exemptions that are available to you under state law.

Employers can be skittish about garnishments though. There is some administrative overhead, and it also brings your financial problems to their attention.

Once one creditor garnishes, the next creditor would have to wait until the garnishing creditor's judgment is satisfied, so it can be an effective deterrent toward further legal action.

If you can't stand the garnishment, you can always go BK. If you do it quickly enough after garnishment, the garnishment will not only go away, the money already garnished will have to be refunded into the bankruptcy estate by the garnishing creditor.

One problem with settling is that depending on whether and how the settlement gets reported to the CRAs, other creditors may notice that you appear to have the capacity to pay more, and they may start to come after you. Truth be told, that sort of capacity is probably apparent to them already by virtue of the Jeep tradeline, and perhaps other tradelines. They have services with very sophisticated statistical models that alert them to which collections fruit is low-hanging.

Another problem is that often attorneys have separate corporations, perhaps just on their own but maybe with a couple of golfing buddies. These are tiny JDBs, and they are often able to pick up debts one or two at a time ... if they get paid on your debt A, they may go out and buy your debts B, C and D and keep coming back for more.

[LadynRed]

In addition, does the BK court verify the list of Bad Debts you compile? If it doesn't, couldn't a person just not list the account he/she wants to keep?

Hiding ANYTHING in a bankruptcy proceeding, especially now under the new law, is a VERY bad idea. The rule - just don't do it ! With the mass of required documentation you to have now to file, you can't even think of hiding anything.

If all of your accounts, paid or not, are listed in your schedule, then what do you use for daily living expenses? Some places, like motels, pretty much require credit/debit cards.

See, this is the mindset you must change. For daily living expenses - USE CASH ! I don't necessarily mean carrying around a wad of greenbacks, a debit card will do nicely. Just stop thinking about credit cards for every day expenses or you'll be back in debt soup before you know it.

Motels will take a debit card for reservations AND checkout. Avis and Budget in many areas WILL take a debit card to rent a car, just be aware that they will 'block out' a few hundred on your account until you turn the car back in, then they charge the actual rental amount.

Would it make a difference if the accounts that I want protection from are closed and charged off and with collectors?

Nope, none whatsoever. Closed, charged-off and in collections will NOT stop a lawsuit, neither will the expiration of the SOL. If you file for BK, ALL debts must be included. A card with a $0 balance is not a debt - but there's no guarantee that the creditor will leave the account open once you file, regardless of your history.

[rella5]

Would it make a difference if the accounts that I want protection from are closed and charged off and with collectors?

"Everything else is in very good standing. Even my Jeep (which I've never been late on) will be paid off in 4 months. "

Scaron,

4 out of 9 of our accts were CO and sold to CA's right before we filed so no, that doesn't make any difference at all.

The 3 cards I mentioned were in good standing at the time of filing, all with small balances. None of the 3 filed claims which is why I paid them down to a zero balance myself after filing BK. I have no idea if that is why they have not closed them.

I wonder if you can wait out the 4 months til the jeep is paid off or try to pay off early? If so then you would not have to include that creditor in a BK (CH13) if you decide you have to do that.

I imagine others are sick of me saying this, but for me and my DH, in hindsight, CH13 was not the right move. BUT each person's situation is entirely unique and it may be right for you. I just caution all to research and consider thoroughly and don't let emotions rule your head. Take enough time and talk to more than 1 BK atty.

The best result of our BK is we have learned to live WITHOUT credit cards! We do travel a little, and our visa check card works very well. And we no longer spend beyond our means. And that is a very good feeling.

[momof5]

I agree with one statement that Rella5 made....it is a good feeling to pay cash for everything and live within your means. I loved not having to be afraid of the phone or the mailbox!

The down side was when their was a sudden large expense (ie: car repair), I always had to turn to my mother for help.

Credit can be your friend if you do it right.

As a contract programmer, I often have had a contract not renewed (project completed and they didn't need excess staff anymore). I learned that those with the least debt survive financial bumps much more easily!

[Scaron]

Would it make a difference if the accounts that I want protection from are closed and charged off and with collectors?

"Everything else is in very good standing. Even my Jeep (which I've never been late on) will be paid off in 4 months. "

Scaron,

4 out of 9 of our accts were CO and sold to CA's right before we filed so no, that doesn't make any difference at all.

The 3 cards I mentioned were in good standing at the time of filing, all with small balances. None of the 3 filed claims which is why I paid them down to a zero balance myself after filing BK. I have no idea if that is why they have not closed them.

I wonder if you can wait out the 4 months til the jeep is paid off or try to pay off early? If so then you would not have to include that creditor in a BK (CH13) if you decide you have to do that.

I imagine others are sick of me saying this, but for me and my DH, in hindsight, CH13 was not the right move. BUT each person's situation is entirely unique and it may be right for you. I just caution all to research and consider thoroughly and don't let emotions rule your head. Take enough time and talk to more than 1 BK atty.

The best result of our BK is we have learned to live WITHOUT credit cards! We do travel a little, and our visa check card works very well. And we no longer spend beyond our means. And that is a very good feeling.

I'm most likely going to wait until this Jeep is paid off at least. I mean I was never late and we are talking August as my last payment. Also I do only have 1 judgement against me and I am working with them to go on a reasonable payment plan or I my pay it off completely because, they are willing to cut that in half. The others haven't gone this far and I'm starting to put in place some of the things recomended here to slow them down (proper debt valadation for example).

Like a lot of people I wish I had dealt with this earlier but, you know what I feel better about it already because, I am meeting it head to head.

This is just an invaluable site!

[flacorps]

I'm most likely going to wait until this Jeep is paid off at least. I mean I was never late and we are talking August as my last payment.

You may want to take a close look at those lookback periods for preferential payments. You would hate to pay off the Jeep, file BK, then watch as a satisfied creditor becomes unsatisfied b/c other creditors objected to the preferential payments and got the BK court to pull them back from the Jeep creditor.

Can some BK expert chime in here ... still 90 day lookback for voidable preferences, right?

[direred]

Iirc, unless state law differs, 90 days -- 12 months if they're an insider.