THINK YOU MIGHT NEED TO FILE BANKRUPTCY? AVOID THESE TRAPS THAT ENDANGER THE SUCCESS OF YOUR CASE.
The phone is constantly ringing with creditors demanding payment. You may be behind on your car or even house payments. You may have been served with legal papers, and may be facing a garnishment. You feel you might be a candidate for bankruptcy. You may be moved to take actions which you think will better protect you which may in fact seriously impair you ability to obtain relief from your debts, or may even result in your losing assets!
DO NOT TAKE SUCH ACTIONS BEFORE YOU SPEAK WITH A BANKRUPTCY SPECIALIST!
Transferring Assets. One’s first thought might be to place some of your assets in the name of a friend or loved one—this is called a “transfer.” While losing assets is a logical fear, this seldom occurs in personal or small business bankruptcies. But transferring assets can lead to really big problems. Essentially, you are not allowed to make yourself poorer before filing for debt relief. A consumer must list all transfers of property (sale, loan, junking, give-away) for the previous two years. Property transferred for less than “fair value” can result in big trouble for both you and your transferee. Always resist the urge to transfer assets.
Hiding Assets. Another common assumption is that merely not listing an asset in bankruptcy will result in missing items “not being noticed.” This is a terrible practice; it is vitally important that all of your assets be listed in your petition (items may be reasonably grouped–it is not necessary to schedule every single item of furniture, for example). There are multiple reasons for this. First, the bankruptcy system relies upon trust—which lessens your burden in preparing your case. Second, an intentional omission would imply you are acting “in bad faith.” The success of your whole case would be threatened, and you could be prosecuted. Your lawyer can work with you to show the proper value of your property—a “pawn shop value” is often acceptable.
Paying Favored Creditors. Another first impulse is to pay existing debts to friends or family members ahead of declaring bankruptcy. Please resist this impulse. Payments totaling over $600 to any one creditor during the previous 90 days is called a “preference”—which is what it is, preferring a particular creditor over others who will likely be canceled once you file bankruptcy. A Bankruptcy Trustee can demand repayment from the favored creditor—this is called a “claw-back.” Not only will your desire to favor your creditor be unsuccessful, you will not get your money back—it will distributed to all of your creditors. In Chapter 13 a preference can lead to a higher Ch. 13 Plan payment. And for relatives, the look-back period is one year. Bring all such transfers to the attention of your lawyer.
Waiting Too Long to Seek Debt Relief. Debt problems are often overwhelming. It is not uncommon for clients to bring us bags of mail and legal notices completely unopened. Your legal situation can deteriorate if problems are not addressed promptly. A lawsuit, if not responded to, can and will result in a judgment and eventual garnishment, which is always embarrassing. A judgment can also create a lien on your home which may or may not be able to be removed. The act of filing a bankruptcy completely stops most legal actions in their tracks—everything—lawsuits, repossessions, foreclosures–is halted. This then permits unpressured time to determine your next moves. But as time passes before a BK filing a client’s range of later actions becomes narrower. And occasionally, when a last-minute problem prevents a bankruptcy filing, significant loss can occur—such as the loss of a house or a vehicle. An individual facing bills that are significantly behind, or that cannot be fully repaid within, say, 12 months, should at least consult a bankruptcy expert. It will be time well-spent. We never charge for a first appointment.