Bankruptcy: What To Do And What Not To Do Before Filing
Let us begin by saying no one ever wants to file bankruptcy. However, there are circumstances that inevitably lead individuals to consider that option. Here are some useful tips on what you should DO before deciding to file.
- DO a review of all your expenses for the previous 12 months. How much did you spend, either by writing a check, paying cash, automatic bank payments, or by using credit cards in each category such as rent/mortgage, taxes, insurance premiums, utilities, car payments, motor vehicle gas & maintenance, food, clothing, daycare, medical, school expenses, entertainment, etc? Look to see if you can reduce or eliminate any of these expenses in the next 12 months without substantial hardship.
- DO make a list of all your creditors, what the debt is for, the amount you owe, the interest rate being charged, and the required minimum monthly payment. Remember, some debts, such as student loans and some taxes, are not dischargeable in bankruptcy.
- DO look at your household income over the previous 12 months. Is it likely to increase in the next 12 months? If not, will a reduction in your expenses cover any shortfall?
- DO take inventory of your assets and their value. These include all financial accounts, as well as real estate and personal property. Some assets cannot be attached by levy or garnishment by your creditors.
- DO review all real and personal property transactions you made in the last 2 years such as the sale of real estate, automobiles, antiques and collectibles.
- DO consider taking a pre-filing credit counseling course from a provider approved by the Department of Justice US Trustees Office. This can be useful in understanding your financial situation, can be taken in person or through the internet, and is relatively inexpensive. In any case, a credit counseling course is a prerequisite for filing bankruptcy. A complete list can be found at http://www.justice.gov/ust/list-credit-counseling-agencies-approved-pursuant-11-usc-111
- DO consult with a bankruptcy attorney to determine your bankruptcy eligibility, possible alternatives, and possible pre-bankruptcy planning for your particular situation.
Here are some useful tips on what you should NOT do if you are considering filing for bankruptcy.
- DON’T take any cash advances from your credit cards to meet expenses or payoff other debts. Under certain circumstances credit card cash advances may not be dischargeable.
- DON’T give away or transfer any of your property to close friends or relatives. A bankruptcy trustee can void such transactions under certain circumstances.
- DON’T sell any of your property unless (a) it is for market value; (b) you document the sale, including what was sold, date of sale, the sale price, the buyer’s name, address and phone number; and (c) you can account for the use of all the proceeds from the sale.
- DON’T attempt to avoid bankruptcy by liquidating your retirement accounts. Both state and federal exemptions can prevent your creditors from getting at these funds.
- DON’T attempt to avoid bankruptcy by obtaining a loan using an incomplete or misleading financial statement. Debts incurred by fraudulent means are nondischargeable.
- DON’T make any extraordinary payments to particular preferred creditors, especially credit cards you may want to keep, close friends, or relatives. Such payments would need to be disclosed and the trustee can seek return of those payments.
- DON’T forget to consult with a bankruptcy attorney before you make any commitment to a possible bankruptcy alternative, such as debt consolidation or other advertised debt relief solution.
At Caldecott & Forro, P.L.C., we have represented both debtors and creditors in bankruptcy matters, as well as having assisted clients avoid bankruptcy. Call me for a free initial 30-minute consultation.