Don't Make These Mistakes Before Filing for Bankruptcy
If you are going to file for bankruptcy, you want to make sure that your attorney sets you up for success. You therefore need to do some pre bankruptcy planning to make sure you avoid some of the most common mistakes that could really mess up your bankruptcy case.
DON'T RUN UP YOUR CREDIT CARD DEBT BEFORE FILING FOR BANKRUPTCY.Once you have made a decision to file for bankruptcy, you should stop using your credit cards. The law says that consumer debts for luxury goods and services to one creditor of more than $500 within 90 days before you file for bankruptcy might not be wiped out. If you have incurred these types of debts shortly before you file for bankruptcy, you might have to repay them in full.
Furthermore, cash advances of more than $750 within 70 days before you file for bankruptcy might not be wiped out, and you might have to pay those specific debts even though you have filed for bankruptcy.
We don't want this to happen to you. Therefore, please make sure to let your attorney know of any recent credit card debt, or other debts that you have incurred within the last 90 day period before filing for bankruptcy. Your bankruptcy attorney should know how to handle these situations, and will guide you so that you can achieve the best results. Your goal should be to wipe out your debts, make sure you keep whatever property you own, and obtain a legal discharge from the bankruptcy court, which means your debts have been totally forgiven.
There are only a few exceptions to the bankruptcy discharge, and the type of debts you normally can't wipe out in a typical bankruptcy case include court fines, child support, alimony, criminal penalties, restitution, and student loans.
DON'T REPAY DEBTS THAT YOU OWE TO A FAMILY MEMBER OR FRIEND BEFORE FILING FOR BANKRUPTCY.You are not permitted to treat debts that you owe to family members and/or friends differently from the way you treat debts that you owe to credit card companies and other unsecured creditors. Let me give you a specific example of what could possibly happen if you aren't aware of this law.
Let's say that you have $20,000 of credit card debt and other debts that you would like to wipe out. You haven't been able to pay any of those bills over the last year, and you file a chapter 7 in the hopes that in 4 months all of your debts will be forgiven by the bankruptcy court.
Let's also assume that within the last year you borrowed $5000 from your uncle, Tom. You didn't want to file bankruptcy on him, and within the last 10 months you paid uncle Tom $500 a month. Therefore, you paid uncle Tom back in full before you filed your bankruptcy case.
Well, here's the problem that you have created: You owe a lot of money to credit card companies and other creditors. You have paid them nothing at all in the last year. On the other hand, you have totally paid back uncle Tom. The bankruptcy trustee will see that you have treated uncle Tom much differently than the way you have treated your other creditors, and this is not fair to the other creditors. You have preferred your uncle over your other creditors.
Unfortunately, this could cause serious problems for uncle Tom. Believe it or not, the trustee can sue him, and ask the bankruptcy judge to issue an order requiring uncle Tom to pay the trustee the $5000 that you paid to uncle Tom over the last 10 months. Once the trustee gets that money, he will determine a fair way to pay that money to the various creditors that got nothing from you over the last year.
This is not the type of result you want to happen, is it? Therefore, if you have made any payments on debts that you owe to family members or friends, please make certain that you let your attorney know before you file for bankruptcy so that your attorney can give you the best advice so that we can avoid this type of potential challenge to your bankruptcy case.
A knowledgeable attorney can usually avoid this type of problem from occurring by engaging in some pre bankruptcy planning on your behalf.
IT IS USUALLY NOT A GOOD IDEA TO START WITHDRAWING MONEY FROM YOUR RETIREMENT ACCOUNTS.When you file for bankruptcy, retirement accounts are usually completely protected. That means that creditors cannot get any money from funds that you have set aside in a qualified retirement plan.
As a simple example, let's assume that you have $300,000 in your qualified retirement account, and you owe $50,000 in credit card debt. If you file a Chapter 7, you could totally wipe out your debt and keep all of the money in your retirement account.
Many people, however, have made the mistake of taking money out of their retirement accounts to try to pay their bills before filing for bankruptcy, and this is usually not a good idea. Why would you jeopardize your retirement money by paying debts that you can totally wipe out by filing bankruptcy?
If you have withdrawn any money from your retirement accounts before filing for bankruptcy, please let your attorney know, and your attorney can try to advise you of the best ways to protect your retirement money.
DON'T TRANSFER PROPERTY OUT OF YOUR NAME BEFORE FILING FOR BANKRUPTCY.Sometimes people who do not fully understand the bankruptcy laws, transfer, sell or give away some of their property. By doing this they are hoping that their creditors would never be able to gain any rights to property they own.
The laws are very strict in this area, and the bankruptcy trustee can actually force the person to whom you transferred the property to return the property to the trustee. The theory behind all of this is that the property could be used to pay back some of your debts.
Just to give you a simple example, what if you owned a house worth $100,000, and you had a $20,000 mortgage balance on it? Let's assume you transferred ownership of that property by issuing the deed to the property as a gift to your uncle before filing for bankruptcy. The bankruptcy trustee could force your uncle to turn over ownership of that property to him. The trustee could then force a sale of the property, and the trustee could use some of the sales proceeds to pay off some of the debts you owe to your creditors. This means that you no longer own the house, your uncle no longer owns the house, and your creditors get paid on debts that you wanted to wipe out in bankruptcy. This would really be a bad result, and you certainly would not want something like that to happen to you.
As you can see, transfers of property before you file for bankruptcy could be a very bad mistake. In New Jersey, the trustee can actually look back to see what property transfers you have made over the last 4 years. Therefore, please make sure that you tell your attorney about any and all transfers of property that you have made in the last 4 years before you file for bankruptcy.
MAKE SURE TO TELL YOUR ATTORNEY THE TRUTH ABOUT EVERYTHING, AND MAKE FULL AND COMPLETE DISCLOSURE.Your attorney will go through a series of questions with you concerning your income, your expenses, and all property that you own. You will be signing documents under penalty of perjury. Make sure that the information you provide in your bankruptcy papers is totally true and correct.
You will be going to a meeting with your attorney and the bankruptcy trustee, and you will be sworn in, under penalty of perjury, to truthfully answer all questions. You are going to be asked about your income, your assets, your expenses, your bills, and about any property transfers you have made before filing for bankruptcy. You need to be totally truthful with your attorney in answering these questions, so that your attorney can properly prepare your case and give you the best possible legal advice.
Once your attorney knows all of the information, your attorney might advise you that bankruptcy is not the best solution for you, and could advise you about other solutions that might work out better for you. Your attorney can only give you the best advice if he knows the truth about everything. If you don't truthfully disclose all information, the Bankruptcy Court could deny you the right to wipe out your bills, and there could be other serious penalties and consequences. Obviously, we don't want that to happen to you, so make sure that you always give your attorney complete, accurate, and totally truthful information. When it comes to filing bankruptcy, total and complete honesty is definitely the best policy.