Can You Spot the Red Flags?

07 Jan Can You Spot the Red Flags?

I received a call from a potential client. At first glance this case seemed viable. As our discussion progressed, the red flags started to arise. I am going to set out the facts below. Can you spot the potential issues with this case scenario?

The potential client is a 50 year old woman who is self employed as a salesperson. In 2004, 2005 and 2006 she earned just over $100,000. In 2007, her annual income was around $35,000. She reports that in late 2006 there was significant structural damage to her house due to a tornado and that she spent the first 6 months of 2007 fighting with the insurance company and arranging for contractors to rebuild her house. Several of her best sales accounts were lost by the time she resumed working in July.

When reviewing her monthly gross income, however, her monthly gross numbers were roughly the same during each month of 2007. She explains that gross receipts for the first six months were residual commission while gross receipts for July through December represented new business.

She states that she expects to earn between $50,000 and $60,000 for 2008, although January and February do not look good so far (as of the 1st week in January).

My prospective client has about $70,000 of credit card debt. $25,000 of this balance was incurred as of September, 2007 and includes $5,000 spent in late November for a vacation. Most of the remaining credit card balance was incurred after January 1, 2007.

Finally, my prospective client has arranged to trade in her paid for car (worth $7,500) for a new $40,000 sedan. She has a friend in the car business who was able to get her a great deal. She states that her current vehicle needs at least $2,000 in repairs immediately and will likely need to be replaced soon. She would like to replace the vehicle prior to filing so she can take advantage of a very low interest rate.

What problems do you see, if any and what should this individual do?

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Jonathan Ginsberg, Esq.

I represent individuals in Chapter 7 and Chapter 13 cases filed in the Northern District of Georgia, which includes Atlanta, Newnan, Gainesville and Rome. I publish several informative web sites, including https://www.atlanta-bankruptcy.com and an Atlanta bankruptcy blog, https://www.thebklawyer.com/thebkblog. Please mention Bankruptcy Law Network when you call.
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