Having financial problems? Think bankruptcy may be an option for you? To help ensure you keep your options open and available, understand there are things you should or shouldn’t do. In many cases, if you take certain action, such as transferring a house into the name of a family member before filing bankruptcy, you may either limit your options available or put your asset at risk. There are even some actions that could completely jeopardize your ability to get a bankruptcy discharge. These dos and don’ts for bankruptcy can help limit issues and help you preserve your rights. Here is a list of dos and don’ts for bankruptcy.
Here are the Top 18 Dos and Don’ts for bankruptcy:
- Do talk to a bankruptcy attorney immediately. Most bankruptcy attorneys offer free consultations, so you should take advantage of that. Talking to an attorney doesn’t mean you will definitely be filing bankruptcy. It allows you to understand how bankruptcy would apply to your situation. There are many different types of bankruptcy and it is important to understand how each option could apply to your situation; individuals primarily file Chapter 7 or Chapter 13. Additionally, you want to find a bankruptcy attorney that makes you feel comfortable. You will only be completely honest with someone if you trust him or her.
- Don’t transfer property or money. It is important for you to be aware that transferring title to property before declaring bankruptcy is not an option. Do not sell or transfer assets to your friends or relatives to hide them from creditors or the bankruptcy court. The trustee will ask you about such transfers at the first meeting of creditors, and has the power to recover those assets. The trustee can basically undo any transaction you have done within a certain time frame. In Virginia, it is at least two years (and could be much longer). Also, don’t transfer money into your kids’ bank accounts. They have you as a co-signor or guardian and are subject to the same review as your accounts. Hiding assets can be a reason for the court to deny you a discharge, and you can be subject to criminal prosecution.
- Do tell your lawyer everything. Even if it is embarrassing, it is better if your attorney knows everything about your situation. If you have made major purchases recently, then it may be important to wait to file. If you took a cash advance recently, reviewing the amount and timing is important. Or if you have an existing medical condition, it may be important factor to consider in the timing of your bankruptcy to ensure you do not have new debt that will pop up right after the case is filed. Additionally, it is important to list all assets and debts. Anything that isn’t listed in your petition may not be discharged. Additionally, failure to list all your assets and your debts may result in not getting a discharge.
- Don’t leave out income. People think that a second, part-time job does not count as income. All household income must be included. The court will look back at least six months to see what your household income has looked like. Additionally, if you have had overtime recently, it will go into the calculation as well. Even if overtime is not guarantee, it is still counted in the lookback period. Similarly, even if your spouse is not filing, you must list his/her income unless you are legally separated or living in separate households. The court needs a picture of your household’s financial situation. The court cannot require a spouse to pay a debtor’s debts (unless you are in a community property state), but they can require a spouse contribute to the household. If you want to claim somebody as a dependent in your bankruptcy, you must include their income. Additionally, social security and VA Disability payments do not count in qualifying you for bankruptcy, but it still must be listed. In a Chapter 13, sometimes we can limit into being considered only to current income (or more future looking income), but that will depend on various factors.
- Don’t work extra overtime to pay your lawyer, unless you have talked to your attorney first. Bankruptcy is heavily based on your recent income. Income in a Chapter 7 controls whether you can qualify for a liquidation bankruptcy and income in a Chapter 13 helps dictate how much need to be paid back to creditors. Attorney provide their guidance and analysis based on the situation when you talk to them. If you then increase your income substantially, then it could impact your options.
- Do keep track of expenses. Part of a bankruptcy filing is disclosing expenses. Many individuals do not always realize where their money is going. But we want to be as accurate as possible with our accounting. If you are sending your mom, $300 per month, we want to make sure we account for that. Some expenses may be questioned or deemed unreasonable. If you are spending $1,000.00 per month on food for a household of one, the court may not allow the full amount unless there is a good justification. Other expenses may be allowed, but could be questioned if higher than average. For example, if you are paying $700.00 per month for medical expenses, it is important to keep documentation in case you need to prove it later on.
- Don’t pay back preferred creditors or family/friends. Many consumers want to pay certain creditors in full before filing for bankruptcy. The court doesn’t want you to play favorites and pay money to some creditors and not pay the rest. The court believes all creditors should be treated the same; however, there are exceptions for secured creditors, like your mortgage or car loan. The Trustee can reach back ninety days to recover money paid to general creditors and spread it out more evenly to all of your creditors. The Trustee can take back funds paid to your family and friends, if you have paid them back within a year.
- Do make sure to list all debts. Bankruptcy does not allow you to pick and choose which debts to list or not list. You must list all debts, from the credit card with American Express to the personal loan from Aunt Sally. Secured debts, like car loans and mortgages, may be treated differently in your case, but the debt still has to be listed.
- Don’t incur any new debt without first asking your attorney. It might be a good idea to get a secured car loan before the bankruptcy filing hits your credit profile, but it is a bad idea to buy non essential assets like laptop, plane tickets, TVs, etc. It is important to talk about the pros and cons to opening a new account before filing. Additionally, any new accounts may delay your filing or complicate your case.
- Do keep current on payments for non-dischargeable debts. Bankruptcy usually cannot discharge student loans, taxes, child support, etc. This means these debts will be around even after your discharge. Talk to your bankruptcy attorney about your specific situation, but generally, you want to keep paying these debts
- Don’t make any last minute charges or purchases. When the creditor gets the notice that you filed, it takes a look at your account history. If it sees a bunch of charges right before filing, it will get suspicious. Additionally, creditors can object to any major purchases within approximately three months of filing bankruptcy. The creditor can basically file a separate lawsuit with the bankruptcy court and ask it to not discharge that part of your debts.
- Do keep track of deposits and withdrawals. The trustee in your bankruptcy will review your bank statements. He or she may have questions about large cash withdrawals or deposits. It is important to remember what the money was from/for. For example, if you pay your rent in cash every month, try to make sure you get a receipt and keep it.
- Don’t take any cash advances. Do not make any major cash advances off of credit cards prior to filing for bankruptcy. A creditor can object to the discharge of debts incurred as cash advances before filing. Cash advances are also a red flag for creditors; usually creditors are more likely to review transaction and account history when there have been cash advances.
- Do disclose all assets. Anything that you own needs to be listed in your petition; this includes your 15-year-old furniture and the bank account with 25 cents. Additionally, even if you are on title of an asset, like a house or a bank account, it still means you have an ownership interest. Many families add parents or children to bank accounts to make transferring assets easier, this still means under the law it is yours. It is important to disclose this to your attorney up front to prevent any problems.
- Don’t borrow or withdraw from your retirement. Federal and Virginia law protects your tax retirement accounts from creditors. But funds in these accounts lose this protection the moment you withdraw them. You could also be liable for taxes and penalties for an early withdrawal. These taxes and penalties may not be dischargeable in bankruptcy and could cause a hardship down the road.
- Do separate money. If you have money that may be protected, for example, social security, settlement from a personal injury lawsuit, etc., you want it to be clear where the money came from. Put all the funds in a separate account that you own with the same type of funds, for example, have an only social security account where money is deposited in and no other funds go in. This will make it easier for an attorney to advise you if there is a way to protect the money during a bankruptcy.
- Don’t file until your medical conditions are stable. If you are considering filing bankruptcy due to medical debt or expect to have major medicinal procedures in the near future, you usually do not want to file bankruptcy until those are taken care of. Unexpected complications can occur that can cost significant amounts of money. You may limit expenses, if you have insurance coverage; but, insurance does not always cover all treatments and procedures and there is often a deductible and out of pocket to consider. Filing bankruptcy to just have more medical debt occur soon after is not a good outcome.
- Do file your taxes. It is important to make sure you are current with your tax filings before filing bankruptcy. When filing a Chapter 7, the court will require you to provide your most recent tax filings; the court may hold your case open until the tax return is filed and you have received any refund. If you file a Chapter 13, court will require you to file the last four years of returns in order to be compliant with bankruptcy laws.
Even if you haven’t been the best about reviewing these dos and don’ts for bankruptcy, doing the best you can before filing it all you can ask for. If you are having trouble with any of the above recommendations, then it is important you advise your attorney during a consultation and before filing. Sometimes an attorney can fix the situation or limit the potential issues.
The bankruptcy court review’s a debtor’s financial situation. This list of dos and don’ts for bankruptcy should help you understand that making financial decisions before filing can impact your case. Most bankruptcy courts can look back at least two years to review transactions completed by the debtor; the trustee in your case can also undo certain transactions. It is important to not take any actions that could jeopardize your assets or even your discharge. Talking to an attorney as soon as you are facing financial difficulties can help. Just talking to a bankruptcy attorney does not mean you are agreeing to file bankruptcy, but can help you understand the option if you need to in the future.
It is important to preserve your rights in a bankruptcy. It is important that you review the dos and don’ts for bankruptcy can help limit issues and help you preserve your rights. Having an experienced bankruptcy attorney can help ensure your case goes smoothly and you come out with a fresh start. Ashley F. Morgan Law, PC helps many individuals manage their debts every month. Attorney Ashley Morgan has experience dealing with all the above issues.