If you are finding it hard to pay your bills, bankruptcy may be a suitable solution for you. Many people and companies have successfully dealt with their dire financial situations by filing for bankruptcy. However, there are several considerations that you should make before you file for bankruptcy. You should consult a professional bankruptcy attorney if you want to avoid limiting your options in the filing process. At San Diego Bankruptcy Attorney, we offer credible legal services to help our clients smoothly go through the bankruptcy process and get on their feet again financially.
Reasons Why You Should File for Bankruptcy
Sometimes it might make sense to file for bankruptcy as soon as possible. For instance, it can stop repossession, foreclosure, or wage garnishment, helping you keep your property and discharging your debt at the same time. Here are a few reasons why you should file for bankruptcy.
It will help you Delay or Avoid Your Home Foreclosure
If you are on the brink of foreclosure, you can stop it by filing for bankruptcy. Once you have filed for the bankruptcy, you will prohibit the creditors and lenders from continuing the collection actions against you, including foreclosure proceedings.
Please note, Chapter 7 does have a mechanism to help you stay in your home, making it possible for the lender to lift the stay to make the relief temporary. Only Chapter 13 would help you catch up on your mortgage payment and keep your property.
Even so, one of the benefits under Chapter 7 is that once you file it before the foreclosure ends, your bankruptcy status will help you wipe your entire mortgage debt. You will also not get stuck owing the lender a deficiency (the difference between the auction price and balance) since the lender is obliged to forgive you as well. However, you will be needed to pay the income taxes that arise from the forgiven amount.
You Will Avoid Repossession of Your Car
A bankruptcy status will automatically stop any effort of the lender to repossess your car. Under Chapter 13, you can catch up with your payments by including the payments in your plan. You might also get your car back if the lender had recently possessed it.
Bankruptcy will Stop You from Eviction
Filing bankruptcy would help you stop an eviction, but it would not last for long. However, the status cannot help you if your landlord had already obtained an eviction order from the court.
You can Stop a Lawsuit
If you are facing a lawsuit for credit card debt, car accident damages, or medical debt, filing for bankruptcy will stop the lawsuit. Therefore, you will not have to spend a lot in defense if you have to discharge your debts. Although bankruptcy might help you stop a lawsuit, it might not entirely help in all lawsuits.
Bankruptcy will Save your Savings
Once you lose a job, your savings will likely start to disappear. In such a situation, you will incur extra expenses without any means to replenish your financial status. Therefore, filing bankruptcy would help you significantly in saving your funds before you get reemployed.
Bankruptcy will Help your Pass the Mean Test
You should pass a meant test to qualify for Chapter 7. The mean test is a calculation that determines whether you can pay back part of what you owe to the creditors. The mean test intends to disqualify high earners from wiping out debts that they can easily afford to pay. Filing for bankruptcy would help you pass the mean. However, you should keep in mind that not all the trustees and courts will consider your consideration. If you have a higher income, you will need to cover your monthly expenses while your trustee recommends you convert your case to Chapter 13.
Bankruptcy will Help You Retain a Property that you Are About to Receive
You can keep a property that you are about to obtain an ownership interest if you file for bankruptcy. However, some exceptions exist, especially when you have to report an inheritance or lottery winning within 180 days after your file. Therefore, if you expect to receive property soon, it would be a good idea to file before you become entitled.
The Dos and Don’ts of Bankruptcy
Once you have realized that bankruptcy is the best option for your financial position, there are certain things that you should do and avoid to ensure that the filing process is successful. Here is a list of things to do and avoid to get the best while filing for bankruptcy.
When you are about to file for bankruptcy, you should consider a couple of aspects. Carefully review the list below to acknowledge what is expected from you.
Look for a Competent Lawyer
Filing bankruptcy is a crucial personal decision. However, there are many complicated legal requirements that you cannot manage to navigate all by yourself. In that case, you should seek a competent bankruptcy attorney to get the best out of your decision. Seeking help from an attorney allows you to understand how the bankruptcy would apply to your situation. Even so, you should find an attorney that makes you comfortable, is honest and someone that you would trust.
Explain Everything to Your Attorney
There is nothing too embarrassing to avoid sharing with your attorney. It is essential to be clear about your finances to avoid putting yourself in a situation that would hinder you from acquiring your intended status. Some clients would prefer not talking about their medical situation or major purchases they did recently, thinking that such situations would affect their filing outcomes. It is crucial to report such situations since your attorney will come up with a solution that would nullify their effect on the outcomes of your decision.
Please note, failing to make a list of all your assets and debts may end hinder any attempt to discharge some of your debts.
Track Your Expenses
You have to disclose your expenses while filing for bankruptcy. Many people are not aware of their expenses, which leads to an inaccurate accounting of their finances. Therefore, you should try to be accurate with your accounts to avoid any contradiction while determining your final expenses. If you send $300 to your mom every month, make sure that you can account for such expenses and there is nothing less. If your household expenses are $2,000, you should show the amount to the court if you have a clear justification for your usage.
Some expenses might be questionable, especially if they are too average. For instance, if you are spending $700 per month as your medical expenses, you need to provide the right documentation if you are required to prove such expenses later on.
Keep a List of All Your Debts
Bankruptcy does not give you the chance to pick which debt is suitable for listing and which is not. You need to list all your debt despite how small it might seem. Therefore, you need to list all your debts starting from the one that you owe with your credit card to the one that you owe with a friend or a relative.
Keep Current Payment for Non-Dischargeable debts
Bankruptcy does not discharge loans such as child support, student loans, and taxes. Therefore, you expect these debts to be around even after successfully filing for bankruptcy.
Keep Track of Your Withdrawals and Deposits
Your bank trustee has the responsibility of reviewing your bank statements. The trustee might raise some questions about large withdrawals or deposits, ending up affecting your filing outcomes. It is essential to remember what money was from or to avoid confusion during the petition. For instance, if you are used to paying rent in cash, you should gather all the receipts and keep them to use as evidence during your case.
Disclose all Your Assets
Every property that you have must be listed while filing for bankruptcy. This includes your antique furniture or the twenty-five cents in your bank. Additionally, your title on an asset such as a house may prove that you have ownership of it. The parent or children you have added to your bank account to make your asset transfer easier may legally mean that they are yours. Therefore, you should disclose such assets to your lawyer to avoid any problems during your petition.
Separate Your Money
Suppose you have money that requires to be protected such as a personal injury settlement or social security, this means that you must be clear about the source of such expenses. It is advisable to separate such money from your normal accounts to avoid raising any questions while filing for bankruptcy.
File Your Taxes
You should make sure that you are up to date with your tax fillings before you file bankruptcy. If you intend to file a Chapter 7, the court expects you to give your recent tax filings, the court will require you to provide the recent tax fillings.
In the meantime, the court will hold your case until the tax return is filed, and receive all your refunds. If you are considering filing a Chapter 13, the court will expect you to file your returns for at least four years back to comply with the bankruptcy law.
Carefully Read Your Bankruptcy Petition
Your attorney should provide a drafted copy of your petition prior to you signing it. It is recommendable to review it before you sign it to determine whether everything is as expected. You should make this decision as much as you expect your attorney to help you review every document that is presented to you.
There are certain things that you should avoid while filing for bankruptcy. Failure to adhere to these requirements might affect the outcomes of your petition. Below is a detailed view of the aspects to avoid when filing bankruptcy.
Avoid Transferring Your Property or Money
You should acknowledge that transferring title to a property before you declare bankruptcy as an option. Therefore, do not transfer your properties to your relatives or properties while trying to avoid them from the bankruptcy court or creditors. The trustee will examine your transfers once they meet with you and can recover such assets. The trustee can undo any transaction you have done within a specific time frame.
Do Not Leave Out Your Income
Most people assume that having a second or part-time job does not have any effect on the filing process. Therefore, you should include all your income. The court usually looks back at least six months to determine your household income. Similarly, you must list the income of your spouse even if he or she is not filling unless you have been legally separated.
This is necessary since they assume that a spouse might not pay debts from a debtor, but may be required by him or her to contribute to the household expenses. You should include the income of someone you legally acknowledge to be your contributor if you want to claim him or her as your dependent.
Do Not Pay Back to Preferred Creditors, Family or Friends
Many individuals would like to pay certain creditors before they file for bankruptcy. However, the court does not expect you to favor some creditors while you leave others. They believe all creditors to be alike, although there is an anomaly for secured creditors such as car loans or mortgages. The Trustees are in a position of reaching back to ninety days and recover money that you paid to some creditors and spread it evenly across all the people that you owe. The trustee also has the legal obligation to take funds that you would have paid to your family or friends if you had paid them within twelve months or a year.
Avoid Incurring New Debt Before You Speak with Your Attorney
Getting a car loan before you file for bankruptcy might seem like a good idea, but it would be unnecessary to buy non-essentials such as tickets, TVs, plane tickets, or laptops. Also, it might be essential to discuss the advantages and disadvantages of opening a new account before the filling process. In most cases, opening a new account might delay your filing, which complicates your case.
Avoid Making Last Minute Purchases or Charges
When creditors are noticed about your filing, they take their time to look into the history of your account. If it sees several charges before the filing, it would get suspicious and delay the whole process. Also, creditors might hinder any significant purchases done within an approximate of three months after your filling. This might prompt the creditors into filing a lawsuit asking the court to avoid discharging that part of your debt.
Avoid Taking Cash Advances
It is not advisable to make any significant cash advances off your credit card before you file for bankruptcy. A creditor can hinder any discharge of debts incurred as cash advances prior to the filing.
Avoid Borrowing or Withdrawing from Your Retirement
Under Federal laws, tax retirement accounts are usually protected from creditors. However, you can lose such protection if you withdraw from such an account. You can also be held liable for penalties and taxes that come as a result of making early withdrawals. These penalties and taxes are not dischargeable and with a bankruptcy filing, you could end up with a lot of hardship in the end.
Avoid Filing Until You are in a Stable Medical Condition
If you intend to file for bankruptcy due to a significant medical procedure in the future, you should not file for bankruptcy until you take care of such a situation. You might incur an unexpected situation, leading to significant costs in the future. You might try to limit your out of pocket expenses using insurance coverage, but it does not always cover every type of treatment that you need ending up into an out-of-pocket deductible.
Do Not Rely on a Non-Attorney
Some individuals might be tempted to rely on non-attorneys commonly referred to as “bankruptcy preparers” to cut down their expenses or due to ignorance. Non-attorneys might not be as helpful as an attorney unless you are well-versed in the essential legal issues related to your situation. The legal ignorance of such professionals might lead to the loss of essential legal rights, which might cost your filing in the long run.
Do Not Hide Some of Your Assets
As stated earlier, you need to disclose all your property while filing for bankruptcy. However, you might be tempted to hide some of the assets by transferring some of them to your relatives or friends. Such conducts are referred to as bankruptcy fraud and might force the court to dismiss your case.
Find a San Diego Bankruptcy Attorney Near Me
Filing for bankruptcy might seem easy on paper, but it is a challenging task in reality. Once you have decided to go through this path, it is crucial to have a bankruptcy attorney by your side. There are a lot of attorneys that you can rely on, but only a few can manage to offer the kind of service you deserve. At San Diego Bankruptcy Attorney, we are committed to offering the best legal services to get the best possible results. For more information, contact us at 619-488-6168 and schedule a consultation with us.