Do’s & Don’ts of Filling for Bankruptcy
There are many things a person can do to have a smooth and beneficial bankruptcy experience. Getting a fresh start benefits both the debtors and creditors and is best for everyone in the long run. There are certain steps people take to protect their hard-earned assets and following are some common do’s and don’ts for people to consider.
Be straightforward and forthcoming about your finances with your attorney:
Even if it is embarrassing, it is better if your attorney knows details about your financial situation. Giving your attorney insufficient information will not help you in the short or long run. You could lose anything that isn’t listed in your petition. Make sure you give your attorney everything in your current financial files.
Commit yourself to a budget:
Take steps to break the cycle that got you into debt. If you face a very tight financial situation, you need to try to maintain daily, weekly and monthly budgets. It may be unfeasible to stick to an inflexible budget in the beginning but with more practice you will have more and more success living within the budget.
Find out the current value of your property:
People unable to make the payment on numerous mortgages might have options to extinguish mortgages in bankruptcy. Be open to the fact that most property values have decreased in the past year, and look at all your workable options in order to get the most benefit out of working with your bankruptcy attorney.
Be completely honest with everyone:
Cases are audited by the government and failure to disclose information honestly on a petition is a crime.Do have at least a preliminary idea as to what you expect a bankruptcy to accomplish for you.
Accept your current financial situation:
Many of our clients decide to go bankrupt after all other options have been unsuccessful. They have a judgment against them and wages are being garnished or a bank account is being levied. This can be a very depressing and stressful time and acceptance of your situation is the first step to working with your attorney to resolve your situation.
Try to hide assets or transfer property out of your name:
Hiding assets is a dangerous course of action when bankruptcy is being filed because this type of fraud is hard to spot and therefore, the government has made punishment very harsh. Trying to hide assets is risky and illegal. If an asset cannot be protected in a bankruptcy filing, this needs to be discussed with a proficient professional. There are legal ways to protect assets and transferring an asset out of your name and immediately filing bankruptcy is not looked kindly upon by creditors.
Take large cash advances from your credit cards:
People think they can borrow money from their credit card right before filing for bankruptcy. This is fraud because there is obviously no intention of paying that money back. Creditors are adept at catching this type of conduct and will make sure they get their money back.
Pay off car loans just before filing for bankruptcy:
Many people soon find out that bankruptcy laws allow them to keep a car. Therefore, they pay off their car right before filing for bankruptcy or continue to make regular car payments which build too much equity in the car and will cause it to be taken away because it will be considered an asset. It is far better to owe money on your car as this will reduce its value and you will not need to pay anything to the trustee.
Pay off loans to family members right before declaring bankruptcy:
Paying of loans to insiders and family are specifically forbidden by the bankruptcy code and can be recaptured by the trustee within a two-year period. For this reason, repayment of loans to parents or family members should be stopped the moment one considers bankruptcy.
Buy a car that overextends your budget:
Car purchases are one of the most common drains on your monthly income. Be very careful about taking on a new car payment, especially if your household already has one car payment. Do not take out a car loan for longer than two years; the risk is too great of becoming “upside-down” on your loan, owing more than the car is worth. Only buy as much as you can afford.
Take out your financial frustrations on those closest to you:
When faced with financial challenges, many people take out their resentment and aggravation on the people closest to them. This is easy to do but will alienate those that care the most about you and be detrimental to your physical and emotional health.
Do not borrow from your retirement funds:
If you have a 401k or IRA it is generally unwise to borrow or take funds from the account to postpone filing bankruptcy. These types of assets are exempt which means they can be retained despite filing for bankruptcy. Borrowing out of your savings will not solve your financial problems but make things significantly more difficult for you when you retire.