Other Debt Debt Consolidation Loan

[NetJake]

Jurisdiction

Wisconsin

Just over a year ago I took out a non secured debt consolidation loan. I made a few payments and then with COVID we got some deferrals. Since then my wife is no longer employed and we filed for Ch 7. Now the creditor wants proof of what I spent it on. I can find receipts of 75% but about 3K-4K I can't. Most of it was for consolidation of 2 large debts and some to make payments on other credit cards / bill to lower them. They said "In the unlikely event that the docunentary proof is not provided or the use of loan proceeds is materially different then provided on the application, we will have the option to exercise all legal rights as stated in the loan contract."

My question is what happens if I can't prove 100% where every dollar went. I also know I paid off a credit line a month or two after getting the loan but did I have to pay off debt I acquired prior to the loan?

 

[zddoodah]

Before I try to answer your questions, please provide the following additional information:

1. When, exactly, did you take out the loan? Please try to be as precise as possible.

2. When, exactly, did you file your Ch. 7 BK petition?

3. What is the current status of your BK case?

4. Do you have a BK attorney?

5. How was the lender's desire for "proof of what [you] spent [the loan proceeds] on" communicated to you?

 

[NetJake]

Hello,

thanks for your reply. I hope I can answer your questions.

1. When, exactly, did you take out the loan? Please try to be as precise as possible. March 3/5 2020

2. When, exactly, did you file your Ch. 7 BK petition?
Feb 26th 2021
3. What is the current status of your BK case?
We have a meeting with the court in a couple weeks.
4. Do you have a BK attorney?
No
5. How was the lender's desire for "proof of what [you] spent [the loan proceeds] on" communicated to you?
A letter in the mail.

 

[army judge]

Hello,

thanks for your reply. I hope I can answer your questions.

1. When, exactly, did you take out the loan? Please try to be as precise as possible. March 3/5 2020

2. When, exactly, did you file your Ch. 7 BK petition?
Feb 26th 2021
3. What is the current status of your BK case?
We have a meeting with the court in a couple weeks.
4. Do you have a BK attorney?
No
5. How was the lender's desire for "proof of what [you] spent [the loan proceeds] on" communicated to you?
A letter in the mail.

I don't see anything fraudulent about the way you applied or used the funds.

I suggest you attend the 341 hearing as scheduled and see if the referee asks about the loan in question.

I suspect the lender is attempting to intimidate or scare you into reaffirming.

What you describe occurs regularly, especially with pro se BK litigants.

Based upon your recitation of events, the lender might be the one due a scolding, if you were contacted SUBSEQUENT to your BK filing and the BK Court "stay" order.

Hang in there, your BK relief isn't that far away, citizen.

 

[zddoodah]

Ok...so, I asked about the dates of the loan and petition because I thought the lender might be angling for something. Given the dates you mentioned, I don't think that's an issue.

In light of the additional information:

My question is what happens if I can't prove 100% where every dollar went.

That's up to the lender. The only thing I can think of at this point is that the lender might try to have the loan determined non-dischargeable on the ground that you falsely represented you would use the proceeds to pay off existing debt. Obviously, I'm in no position to evaluate something like that. However, you would probably be well-advised to retain an attorney at this point.

I also know I paid off a credit line a month or two after getting the loan but did I have to pay off debt I acquired prior to the loan?

In part, the answer to this question depends on what the loan papers said and what representations you made in connection with taking the loan. Again, you're at the point where you may soon be in over your head and should strongly think about retaining an attorney.

 

[adjusterjack]

We have a meeting with the court in a couple weeks.

Did you send that lender a copy of your BK filing?

If not, do so now and advise the lender of the date of your 341 meeting.

Meantime you have the option of ignoring the request (up to you) since that loan is likely to be discharged unless the creditor properly files an objection.

 

[mightymoose]

Your loan was granted to consolidate existing debt at the time it was issued. If you used it to cover living expenses or new debt I can see them taking issue with that- that was not the intended purpose of the loan.
They want to see how the loan consolidated your debt that existed on the date it was given. If you did not use it for that you will likely have problema.

 

[NetJake]

Thanks for your input everyone.

Was notified of the filing which is why they even mailed the letter. They claim they were "auditing" my account.

I did not send a copy of the letter to the court. They stated it wasn't an attempt to collect the debt just an audit of how the funds were used.

I never thought of it as a tactic to get me to reaffirm the debt. It's a $0 asset case so I'm not sure what they are trying to get. I'm even a single income household now that my wife is no longer working.
Thanks

 

[adjusterjack]

Was notified of the filing

Good.

I'm not sure what they are trying to get.

They may be trying to determine that the debt was obtained by fraud or false pretenses. Those kinds of debts can't be discharged but the creditor has to file an adversary action to bring the matter before the court.

Since fraud is a crime you would be wise not to provide any information to the creditor and also not get into any conversation. If the creditor does nothing between now and discharge just send a copy of the discharge without comment.

 

[zddoodah]

Just FYI, you're not under any obligation to respond to a letter request (although you obviously can if you want).