Filing Bankruptcy? Read This First…

Get professional advice, from an attorney who is experienced in bankruptcy BEFORE you make any significant debt or property decisions. Many things that people normally do have unexpected consequences in a bankruptcy setting.  Before you even call an attorney for an appointment, it is probably a good idea to hold off on making any decisions about debts or what to do about them.   In this 3 part series, I will go over some of the common things that I have seen people do that have caused major problems in their bankruptcy cases.

1)   Get a handle on all of your bank accounts. Failing to disclose a bank account can raise the suspicion of the bankruptcy trustee and could be the catalyst for a lawsuit accusing you of fraud and objecting to your bankruptcy discharge. Be careful. Make a list of, and disclose all bank, checking, savings, brokerage, and credit union accounts to your attorney.  Commonly missed accounts include brokerage accounts, Christmas and Savings Club accounts and online accounts such as paypal.

2)    Don’t use your credit cards.  Charges made shortly before filing a bankruptcy case may increase the chance that your case will draw an objection from a creditor, who may ask the Court to not discharge that debt. Generally speaking, purchases for necessities such as groceries, gas or basic clothing won’t draw attention, but large luxury purchases on the eve of bankruptcy will raise eyebrows. To learn more see: Using Credit Cards Before Bankruptcy is a Big No No!

3)    Don’t take credit card cash advances, or use convenience checks on credit card accounts, for the same reason as #2 above.

4)    Don’t do balance transfers between cards.  Frequently, folks will take advantage of teaser rates offered by new credit cards for a limited period of time.  Then they open new accounts with teaser rates to keep from paying interest on the balance.  This can result in your case being an “asset” case, with your trustee recovering money from a creditor you paid before bankruptcy.  Doing this can cause your case to be open for months longer than you would otherwise have, and possibly result in a creditor filing an action to have the debt not discharged.

5)    Don’t pay money to family.   This is a big problem, and one that comes up frequently.  Often, we borrow money from family when we are short of funds.  Borrowing is not the problem in bankruptcy.  Paying back is the problem.  There is a two year “lookback” period, and if you pay back money to (or give money to , or pay debts of) “insiders”, mainly but not exclusively meaning family and friends, the family member or friend can be sued by the bankruptcy trustee to recover the funds.  This would be a terrible way to reward their kindness.  Better to explain to them that they will have to wait until later for repayment.

6)    Don’t transfer title to assets, sell property or give property away before filing, unless you have discussed the transfer with an attorney first.  These transfers are sometimes looked at as an attempt to hide assets, or defraud creditors.  So always wait until you get the green light from your attorney before selling, giving away or even throwing away any property that has any significant value.

7)    Consider if you are about to receive an inheritance.  Not something we like to consider, but if you have a family member or friend who may pass away in the next year, discuss this with the attorney.  Even though we normally value all of your property and debts at the time the case is filed, inheritance will be included for six months after the date your case is filed.

It is always best to wait until AFTER you have met with the bankruptcy attorney before making any significant decisions about property or finances.  What may seem like a perfectly reasonable thing to do may turn out to have disastrous consequences.