In preparing to file bankruptcy a client should be aware of how a bankruptcy case is reviewed by creditors and administered by the Trustee. The client should be advised of what assets are exempt and can be retained and what assets would be turned over to the Trustee.
A client should not use or borrow money on the eve of filing bankruptcy. There is a presumption of non-dischargeablity for consumer debts of more than $500.00 for luxury goods purchased within 90 days of filing the petition. There is also a presumption of non-dischargeabilty for cash advances more than $750.00 incurred within 90 days of filing.
If you have secured property such as a house or vehicle and you want to retain the property you should continue to make the payments to that creditor.
If you have a 401k or Ira it is generally unwise to borrow or take funds from the account to stave off filing bankruptcy. This asset is exempt which means you can retain it despite filing for bankruptcy. Borrowing or taking a hardship loan generally will not solve your financial problems but make things significantly more difficult for you when you retire.
Do not pay relatives for debts that you owe them prior to filing. Any payment to a relative within 1 year of filing a bankruptcy is considered a preference and the Trustee may attempt to collect the funds from your relative. It is ok to pay your relatives back after you file your case. In addition any payment to a creditor of more than $600.00 within 90 days of filing is a preference and can be recovered by the Trustee to distribute amongst all your creditors. However, this is not the case for ordinary secured payments for a house or a vehicle.
Do not transfer any property to a relative within 1 year of filing your case. The Trustee may even go back 6 years from filing your case if the transfer was for a fraudulent purpose such as avoiding paying your creditors.
Adjust your tax deductions from your check so that you basically break even on your taxes. You should do this anyway since it would provide you more money to live on each pay and there is no reason to have the government owe you money at the end of the year.
If you are filing a Chapter 13 you may want to increase your contribution to your 401k or retirement if you have excess income.
Be completely honest. Cases are audited by the government and failure to disclose information honestly on a petition is a crime.
List as an asset on your Bankruptcy schedules any potential claim you may have for an inheritance, law suit or other claim. If you are cosigned on a vehicle you must list the vehicle if you are on the title. If you are on your parent’s property for probate reasons, you must list your interest on the property.
If you inherit property or receive money through a divorce settlement within 6 months after you file your case you must amend your petition and disclose this to the court.
Keep good records of your financial affairs. Retain your bank statements, pay stubs and statements you receive from creditors.
Filing a bankruptcy is a detailed process. It is important to seek help from an experienced practitioner in deciding what type of bankruptcy should be filed. It is also important to get sound advice on how you can preserve your property. If done properly, bankruptcy can offer you an opportunity for a fresh start. Most people who are delinquent on their bills and unable to afford their debts actually improve their credit after filing for bankruptcy.
Article provided by Michigan Bankruptcy Attorney John Steinberger.