QUESTION
Is it legal to pay $3000 of principal on your mortgage in order to pass chapter 7 means test?
Asked on May 28th, 2013 on Bankruptcy - Connecticut
More details to this question:
Would it be legal to make a $3000 principal payment so that business debt became more than consumer debt (mortgage) to pass the Chapter 7 means test? Or, would it be unwound and not legal?
9 ANSWERS
Bankruptcy Attorney serving Henderson, NV
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Jeffrey A. Cogan Chartered, a PLLC
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Just so I understand, you want to reduce your mortgage because if it is $3,000 less, you would then have more business debt than consumer debt? Yes, you can pay down your mortgage by $3,000 and it would be legal as our 9th Circuit allows pre-bankruptcy planning regarding exemptions. You are turning non-exempt cash into an exempt homestead. So, if your business debt is greater than your consumer debt, you are not subject to the means test. If you need an attorney, I would be happy to represent you for $2,000. If you hire someone else, make sure that the retainer agreement is either silent on the issue of litigation with the United States Trustee or is included in your flat fee retainer.
Answered on Jul 24th, 2013 at 3:10 AM
Bankruptcy Attorney serving Phoenix, AZ
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Law Office of D. L. Drain, P.A.
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This must be done with a great deal of fore thought. It is best to hire a very experienced bankruptcy attorney to help you. Please understand that bankruptcy is a very complicated process. It is wise to talk to an experienced bankruptcy attorney before deciding to take this important step.
Answered on Jul 24th, 2013 at 3:10 AM
Debt Settlement Attorney serving San Diego, CA
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Law Offices of Kathryn Tokarska
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This kind of a strategy you don't want to do without assistance from an attorney. I am concerned whether you adequately understand the Means Test first off to see if you can pass it or not. If majority of debt is not consumer debt, the debtor is exempt from Means Test, but just because you pass the Means Test doesn't mean that based on what your Schedules I & J look like you can obtain a discharge in chapter 7. Please get an attorney. The Means Test is an additional criteria, it did not eliminate other considerations that were in existence before the Means Testing was implemented in 2005.
Answered on Jul 24th, 2013 at 3:10 AM
General Practice Attorney serving Coeur d'Alene, ID
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Michael B. McFarland, PA
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It's not "illegal" per se, although there could be a question raised under the requirement of good faith. It would be less likely to raise a "red flag" if you paid it down and then waited more than 90 days to file. (You have to report payments made in the last 90 days prior to filing on the Statement of Financial Affairs.)
Answered on Jul 24th, 2013 at 3:10 AM
I can't say that it would be illegal, but it would be problematic, meaning that it could be challenged. Sometimes it is better to avoid a fight with an alternative remedy.
Answered on Jul 24th, 2013 at 3:10 AM
Bankruptcy Attorney serving Plantation, FL
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Moffa & Breuer, PLLC
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It is not illegal as far as going to jail. Whether or not someone has a problem with this and takes it to the Judge is a different story. It probably depends on how you and your attorney present this to anyone who might care. It is important to have a good attorney in this matter.
Answered on Jul 24th, 2013 at 3:10 AM
Personal Injury Attorney serving Glendale, CA
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JT Legal Group
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Of all the people that I've helped over the internet, you're the one that needs to see an attorney the most. Go to an attorney.
Answered on Jul 24th, 2013 at 3:10 AM
Yes, that would be a viable way of reducing your consumer debt that would not backfire on you. If you make a large payment on an unsecured debt (like a credit card or line of credit) then that could result in a "preferential payment" that the bankruptcy Trustee could overturn.
Answered on Jul 24th, 2013 at 3:10 AM
bankruptcy Attorney serving Meriden, CT
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Law Office of William E. Carter, LLC
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The means test can present many challenging legal issues and cannot really be addressed without all of the facts. There are different steps a debtor may take to avoid the presumption of abuse on the means test but your circumstances really must be reviewed in their entirety and not with a one off question.
Answered on Jul 24th, 2013 at 3:09 AM