Filing for bankruptcy is a financial makeover. Bankruptcy should be a last resort and not entered into without full knowledge of what is required. Do your best to plan your bankruptcy in advance of filing to reach the best desired outcome for you and your family. Here is how to help yourself before you consider if bankruptcy is right for you and your family. Don't shoot yourself in the foot!
1. Do not use your credit cards once you've made your decision to file.
Once you've made your decision to file bankruptcy, do not incur additional debt that you don't intend to repay. You could lose the right to cancel the debt in bankruptcy. One of the worst things you can do before filing bankruptcy is run up a bunch of credit card debt assuming it will be discharged in bankruptcy. The bankruptcy law changes enacted in 2005 lowered the threshold on luxury purchases to $500 and extended the abuse period to 90 days prior to filing. Purchases in this abuse period are asking for extra scrutiny. These amounts change every 3 years.
2. Do not repay family members of friends
Family members or friends cannot be treated any better than other creditors. In the eyes of the law, relatives have the same legal status as other creditors and you are not permitted to treat relatives differently than other creditors. In some circumstances, the trustee can reclaim the amount paid to the family member for distribution to all creditors in the same class. While it feels good to repay a family member, it will feel bad when a trustee sues them to recover the money you paid your parents or sibling or best friend.
3. Do not liquidate your retirement account
Retirement accounts are generally exempt property in a bankruptcy no matter which chapter you file. It is not necessary that you liquidate your retirement funds prior to filing. Some clients liquidate their retirement accounts and still owe substantial sums. Early withdrawal of these funds makes you liable for penalties and taxes which may not be discharged in bankruptcy. Don't trade Visa for the IRS as a creditor.
4. Do not transfer property out of your name
Don't transfer property out of your name prior to filing bankruptcy. The Trustee can undo property transfers if a fair price is not received or if made with intent to defraud, hinder or delay a creditor. This includes transfers to friends or relatives also. You may lose your right to have your debts cancelled in bankruptcy.
5. Do not use your equity line of credit to pay off debt
Under federal law, you have the opportunity to claim an exemption for the equity in your home. This means you can go through bankruptcy, and still have this equity. If you use your equity line to pay off debt or take out a second mortgage, you may be converting debt which would have been discharged in bankruptcy into debt which you will still have to pay in order to keep your home.
6. Always tell your attorney the truth and fully disclose all of your concerns
The courts take the rules very seriously and can file criminal charges if intentional fraud is committed. Even if they don't go that far, they can refuse to discharge a particular debt, or dismiss the entire case. Many of the issues you are concerned about can be addressed within the provisions of the Bankruptcy Code. Speak openly and honestly with your attorney regarding all financial issues. Remember, your attorney is an advocate for your desired outcomes. They can help you more when you make a full disclosure. A full and completely accurate disclosure of all assets and debts is the best way to avoid problems in a bankruptcy case.
Once you have disclosed all of your financial information, your goals for the future, plans for your family, your business, etc. and have asked your attorney all of your questions you will feel better prepared to enter bankruptcy with a vision of a fresh future.
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