going to file...do I stop paying creditors now?

LearningExperience · ‎06-02-2009

So unfortunately we made some mistakes...and we are going to file Ch.13. My husband has been laid off for the past 6mos and this has buried us in an even deeper hole that we were in before. Long story short...my real question is, my lawyer suggested that we stop making all payments to creditors now because we are going to file. This kills me to do this because even though we are in the situation we are in now, I have never made a late payment and am current with all bills. My FICO score right now is 683, my husbands is 634. I know that BK will make our scores go down, but late reporting will make it drop more...am I right?

The lawyer fee + filing is $2800. He suggested the money I would be paying creditors can go to pay him. He will not process the BK of course until he has check in hand. He even suggested not paying mortgage one month to come up with the money. What do I do? i guess I am at a loss because I can't file if I don't have the money. It just doesn't seem right to me though to not pay. He is a very well known lawyer in area and great reviews.

Thanks for your suggestions!

CreditBob · ‎06-03-2009

I filed a chapter 13 a few years ago. You can not file a 13 if you have no employment, wages or self employed, where regular incoming is being received. Sounds like you need to do a chapter 7. There are certain things that can not be discharged or included in the bankruptcy, Tax liens, student loans, credit cards debt aquired within 40 days of filing, child or spouse support, criminal fines & restitution.

http://www.uscourts.gov/bankruptcycourts/bankruptcybasics/chapter13.html

http://www.uscourts.gov/bankruptcycourts/bankruptcybasics/chapter7.html

LearningExperience · ‎06-03-2009

The lawyer said that we would not qualify for a ch.7 because our income is too high (yet we are in the red every month). My husband has been unemployed for the past 6mos...he just got a job and started this week, so now he has income. I work FT myself.

We have made charges to our accounts within the last 40days because we were relying on these in order to just get by since the money wasn't coming in. My lawyer said this was ok.

Anonymous · ‎06-03-2009

speak to another lawyer. Just because your income is over the medium income you may still qualify for a chapter 7 if you pass the means test. I would also do a search of bkforums that are bk specific as they have some good advice, In addition you can go to your library and NOLO press has very good books on chapter 7 and chapter 13 BK. You can PM me if you need additional info. I was discharged from a CHP 7 BK in May 2008 and my FICOS are just as high if not higher than they were prior to BK and stopping payments.

LearningExperience · ‎06-04-2009

What is PMing? How do I do that? Sorry I am new to this.

My lawyer said that it would be in our best interest to file ch13 vs 7 because in the ch 13 we will be able to wipe out our home equity line of $25,500...I guess we can only do this because our home is valued less than our 1st mortgage. It is no longer secured by anything..according to him.

I am excited to hear that your credit scores are better than when you filed already. What did you do in order to get your credit in such great standing? Do you think I should stop paying my creditors now prior to filing...it is the only way I can come up with the money to pay the lawyers fees. The only derogatory info on my credit report is high amt of revolving debt.

Thanks for your help!

Anonymous · ‎06-06-2009

You need to talk to the attorney again. If your second mortgage is unsecured due to exemptions and being upside down on the first, he should be able to get rid of it in a 7 as well as a 13. If you want to keep the house and any cars, keep the payments current, which ever one you file. A creditor USUALLY allows you to reaffirm/keep such items as long as you pay on them, but if you have a history of defaulting or have a shaky payment plan and/or shaky income, they can motion the court to allow them to take the item back and your lawyer has to go and defend against that motion. Lawyers fees can be wrapped into the chapter 13 in most jurisdictions, not all, meaning you pay the filing fees and part of the attorney fees up front, the remainder is included in the monthly payment you make to the court.

Just know that if you miss payments to the court in a 13, either a creditor or the trustee (lawyer working for the court as a referee) can motion to have your case dismissed, so its usually better to have it taken directly out of a paycheck. But if you do it that way, the employer may not send it the first month it gets the request, so make sure you send the money or that you check with the trustee's office to make sure they get it.

REMEMBER, THIS IS NOT LEGAL ADVICE.

Anonymous · ‎06-08-2009

LearningExperience :

Speaking with another attorney will not solve anything.

There are worksheets that have to be filled out, this takes your income and then you go from there.

If you have a lot of unsecured creditors it is likely your plan would be confirmed at 0%.

In this case you will not pay ANYTHING in your plan to unsecured and only secured would be paid 100% (student loans,IRS,state taxes,childsupport ect ect)

This doesn't change simply by going to a different attorney as they will have to put in the same infomation and get the same results.

This is refered to as a means test.

If you are to the point that someone would garnish your paychecks or repo something I would do what you can to prevent that until your case is at least filed so the automatic stay is in place to prevent anyone from taking your stuff unless the trustee, your attorney and you agree.

Good Luck.

MyFico_704 · ‎12-08-2009

To start off..I'm in the same boat as you..still debating what I should do..

Question - Why in the world would the bk attorney suggest that you SKIP a mortgage payment so that you would have the $$ needed to PAY HIM and start your filing? Did you at any point tell the attorney that you DID NOT want to keep the house? I understand that they want to get paid before they start any work..but that is just down right irresponsible on that attorney's part.

It's been 5 months...may I ask where you are at, what have you decided and what was done?

QueenBean · ‎12-17-2009

I vote "No"

Stop paying your bills was the first think my lawyer told me - so I did. Then the Chpt 7 didn't go through because my income was too high.......court converted to Ch 13 which didn't go through because my income was too low to service the debt .....so I ended up negociating my own settlements ....... if I had known then what I know now, I would have continued making the payments until the BK was a sure thing.

Message Edited by QueenBean on 12-17-2009 04:49 PM

Starting Score: 527
Current Score: 679
Goal Score: 800

Take the myFICO Fitness Challenge

Anonymous · ‎12-29-2009

@LearningExperience wrote:
So unfortunately we made some mistakes...and we are going to file Ch.13. My husband has been laid off for the past 6mos and this has buried us in an even deeper hole that we were in before. Long story short...my real question is, my lawyer suggested that we stop making all payments to creditors now because we are going to file. This kills me to do this because even though we are in the situation we are in now, I have never made a late payment and am current with all bills. My FICO score right now is 683, my husbands is 634. I know that BK will make our scores go down, but late reporting will make it drop more...am I right?

The lawyer fee + filing is $2800. He suggested the money I would be paying creditors can go to pay him. He will not process the BK of course until he has check in hand. He even suggested not paying mortgage one month to come up with the money. What do I do? i guess I am at a loss because I can't file if I don't have the money. It just doesn't seem right to me though to not pay. He is a very well known lawyer in area and great reviews.

Thanks for your suggestions!

Find a new attorney. The BK attorney should charge you a filing fee, but accept his payments as a part of the payment plan. You should not be required to pay 100% in advance for a BK 13.

My friend who just filed BK only had to pay the $275 filing fee to the attorney. The rest comes from payments in BK.

If this were BK 7, then yes the attorney won't file till paid in full. But because BK 13 is not a liquidation and immediate discharge, the attorney should collect from the payments.

And here is the kicker: The BK13 will pay the attorney first, then after he/she is paid then payments go to creditors.

You can continue to pay until filed to avoid reported lates prior to BK. Once it is filed, all creditors get notified and the debts have an automatic "stay" and they cannot collect against them accept as directed by the court, which will be based upon your payment plan.

IMO, continue to pay if you can to keep lates off, file with an attorney who will accept the filing fee plus small down (and collect remainder out of BK payment plan), once filed, stop paying and make your wage earner BK payments. Your debts will show IIB, but without any lates in the history.

Good luck!