In bankruptcy - as in every other area of life - preparation is key to success. Taking the appropriate actions ahead of bankruptcy can help your case progress more smoothly. The exact steps will depend on your exact circumstances, but some of the actions may include being current on your utility bill payments, stopping automatic payments, and moving money to a different account. These actions will ensure that your money is allocated correctly
during the bankruptcy.
Most people can be tempted to do whatever it takes to alleviate financial stress. However, it is important to know that you really are prepared to file for bankruptcy. You cannot simply file at will whenever you want your debt wiped out. You have to pass a means test to file for Chapter 7 (bankruptcy discharge) once every eight years, or six years after filing for
Chapter 13 bankruptcy.
Much can happen during the waiting period that can lead to even more serious financial issues, including foreclosure, repossession of your car, unemployment and sickness. During this time, you are subject to garnishing orders on your wages (creditors can attach funds from your paycheck), seizure of funds in your bank account, and repossession of your valuable property.
You may be able to file for Chapter 13, but you would need sufficient disposable income to qualify. For a period of three to five years, all the money left after allowed living expenses have been subtracted will have to be paid towards your debt.
Preparing for Bankruptcy: When You Need to File Quickly
If you already have garnishing orders on your wages, it would be in your best interest to file sooner rather than later, because it will give you more money to pay your bills.
If a creditor has already filed a lawsuit against you, it might also be a good idea to file your bankruptcy petition quickly. Your bankruptcy attorney will assess the complaint to see whether it contains a fraud allegation, because if it does and the matter goes to judgment, it will not be possible to wipe the debt out through bankruptcy.
In the event that the creditor wins a money judgement, it will also receive lien rights that allow it to attach your bank accounts, garnish your wages, foreclose on your home and repossess your car. Most often, however, if you manage to file for bankruptcy ahead of a judgment in favor of the creditor, the filing should stop any pending lawsuits and it should wipe out debts.
Ideally, you should file for bankruptcy before creditors can obtain a judgment and liens that allow them to attach your property. This area of bankruptcy law is complex, which is why you need professional assistance from an experienced San Diego Bankruptcy attorney.
Preparing for Bankruptcy: The Automatic Stay & Set Offs
The automatic stay takes effect as soon as you file for Chapter 7 or 13 bankruptcy and prevents the majority of creditors from taking collection actions against you. However, in special circumstances, creditors are permitted to offset the debt owed on one account with that of another, even subsequent to your filing action. While creditors should put a stop to any automatic debits or payments on your accounts after you file for bankruptcy, it may not always happen instantly.
If you owe money to an institution with which you have multiple accounts - for instance, a bank where you hold a checking account, car loan and credit card - the bank may not demand additional payments on the car loan or credit card debt, but they may use the balance in your checking account on the day of your bankruptcy filing as payment towards the other debt.
Preparing for Bankruptcy: Utility Set Offs
When you move to a new home, or when you open utility accounts for your phone, gas and electricity, you typically pay a security deposit to the provider. As with bank accounts, utility companies may not be able to demand that you pay past due amounts, but they can set off what you owe them by using your security deposit. They can also require that you replenish your security deposit or even post a new deposit, although some limitations exist.
It would be a good idea to time your bankruptcy filing carefully for a time when you are not behind on your utility bills, and perhaps try to prepare that you may have to replenish the deposit, should they ask you to do so.
Preparing for Bankruptcy: Automatic Payments
Authorized automatic debits from your credit card or bank account will not instantly stop the moment you file for bankruptcy. Creditors are supposed to stop automatic charges and debits when they receive the notification of your bankruptcy filing, but it can take time and sometimes, they just don't stop the debits.
It can also take time when you request that they halt automatic payments. If you request that they stop automatic payments, it may still take time. You may be able to eventually get the debited funds back, but it's often a better idea to stop the automatic payments at least a month before you file for bankruptcy to ensure they have stopped it.
The reason why you should stop the automatic debits, is to ensure that you have money to pay for living expenses and for your Chapter 13 payment plan when you file for bankruptcy.
Putting a stop to automatic debits is particularly important when you have authorized the creditor to charge a credit card for ongoing service fees, or to collect money from your bank account or paycheck for debts that will be discharged.
Preparing for Bankruptcy: Protect Your Retirement
Most people make an unfortunate error before filing for bankruptcy: They withdraw their retirement funds to pay off debts that could be wiped out by bankruptcy.
Don't deplete your nest egg. You can save yourself much financial distress by speaking to a knowledgeable bankruptcy lawyer before making mistakes that will cost you in the long run.
Preparing for Bankruptcy: File Your Income Tax Returns
Individuals who receive disability insurance or are not required to file tax returns for another reason, are exempt from this. However, if you have to file taxes by law, you should continue to do so.
Your tax returns are used to determine past and current assets and earnings, and they are needed to satisfy potential priority tax claims. It will be exceedingly difficult to complete your paperwork and your Chapter 13 plan, and it may stop your bankruptcy filing in its tracks.
Preparing for Bankruptcy: Wait for Your "Ship to Come In"
If you're expecting a significant amount of money in the next year or so, it would be wise to wait instead of filing for bankruptcy. Circumstances may differ, but if you're expecting an income tax refund, an inheritance, lawsuit settlement or other money in the short- to medium term, it would be wise to consult with a knowledgeable bankruptcy attorney. The monies due to you may allow you to settle your debts on your own, which means that, should you
run into financial trouble again, you have the option of bankruptcy available
Preparing for Bankruptcy: Avoid Preferential Transfers
Guard against selectively paying back money to relatives or friends within a year of filing for bankruptcy, or to other creditors within ninety days, as the courts may see it as a 'preferential transfer'. If the bankruptcy trustee becomes aware of such preferential transfers, it may file adversarial proceedings to claim the money back from the beneficiary, and distribute it equally to the other creditors.
While such an action might not matter if you paid one of your creditors, it would matter if they sued a family member.
Preparing for Bankruptcy: Avoid Moving Your Assets
It's not unusual for individuals to move their assets before filing for bankruptcy. The court will ask for a statement of assets, and you may be denied a discharge if their investigation finds that you have:
- Or transferred assets for safekeeping.
If you are found guilty, you could even face criminal penalties. You will be required to explain your transactions, so if you sold property before filing your bankruptcy petition in order to take care of food, rent, and utilities, be sure that you have the supporting documents to prove
Preparing for Bankruptcy: Avoid Racking Up New Debt
If you run up debt in the 70-90 days prior to filing for bankruptcy, creditors might object to the discharging of your debt based on fraud and claim that you took out a loan with no intention of ever paying it back. If you used your credit card to buy luxury items during this period, or
if you took out a cash advance on your card, it is considered 'presumptive fraud' and that debt may not be discharged. Necessities, such as food, utilities and even clothing may be considered exempt.
Preparing for Bankruptcy: Provide Accurate, Honest and Complete
If you knowingly commit perjury or misrepresent your information,
you may face penalties, including:
- Up to $250,000 in fines
- 20 years in prison
- Or both.
If you fail to submit all your paperwork, your case may be dismissed in bankruptcy court, or it may require that you file more paperwork at an additional fee. Be careful to include all creditors, or else the debt will not be discharged.
Since the Federal Bureau of Investigation (FBI) is charged with investigating bankruptcy crimes, so it's in your best interest to be as forthright as possible in bankruptcy court. Discuss the ramifications of all decisions relating to your filing with your bankruptcy attorney before you proceed.
Everything you need to maintain a household and work is exempt during bankruptcy proceedings, but your creditors may attach everything else. However, in order to receive the benefits of bankruptcy, you must disclose all aspects of your financial situation. Creditors may examine your financial transactions dating back as much as ten years. The Your Statement of Financial Affairs for Individuals Filing for Bankruptcy form will contain a report of all your previous transactions. Should the court discover that you broke bankruptcy
rules, such as transferring property in order to avoid paying creditors, the transaction will be unwound and the recovered funds will be dispersed to your creditors.
You will have to include the following information with your
- Sources of past income
- Status of past and current businesses
- Storage units and safe deposit boxes
- Assets you are holding on behalf of someone else
- Past and current foreclosures, repossessions and other legal actions
- Moved, sold, transferred or closed financial accounts
- Losses from fire, theft, and other disasters (as well as gambling)
- Contributions or gifts you have given to others
- Environmental issues relating to your property.
On completion of your SOFA form, you must sign a statement which declares the accuracy of the information under penalty of perjury.
Getting Help with Preparing for Bankruptcy
If you have felt overwhelmed by the burden of insurmountable debt for a while, and you don't see any alternatives, you may have come to the conclusion that bankruptcy is your best or only option. Bankruptcy is a lengthy and complex process and every action you take before, during, as well as after the filing will have an effect on your future success. The goal of bankruptcy is to give you a fresh financial start, and it warrants the input of an experienced bankruptcy lawyer.
While you may represent yourself, it can be a risky decision. By hiring a lawyer, you will have a skilled and experienced professional in your corner when it comes to dealing with bankruptcy court trustees and debt collectors.
If you're unsure about your next steps or whether bankruptcy is the right solution for your financial needs, it would be a great idea to speak to a knowledgeable bankruptcy lawyer. Don't delay the process, as finding the sweet spot for filing your bankruptcy petition can make all the difference to your case. Call 619-488-6168 today to schedule an initial case review with a San Diego Bankruptcy Attorney.