To File Bankruptcy or Not to File Bankruptcy?

The idea of filing bankruptcy and wiping out most, if not all of your debts, stopping annoying or offensive phone calls from creditors and moving on into the future debt free, has undeniable appeal to most people. Deciding whether to file for bankruptcy is more complicated than just looking at the numbers. What you do, or don’t do, prior to filing bankruptcy is just as important if not more important, then what happens during your bankruptcy. The question often becomes not only if I should file but when.

Preferring Who You Repay

If you repaid loans to friends or relatives (within one year of filing) or even other creditors (within 90 days), but did not pay or treat all your creditors equally in regards to repayment, then this may be considered a “preferential transfer.” The bankruptcy trustee may file an adversarial proceeding in bankruptcy (similar to a lawsuit) to get the money back from the person or creditor you paid, and then disburse the money in equally to all of your creditors.

Transferring Property, Assets or Money

The bankruptcy schedules require that you provide information on assets including properties and monies, that you own at the time of filing bankruptcy. However, do not be tempted to sell, transfer for safekeeping, or hide assets before filing bankruptcy. If you do, you might be denied a discharge and even be subject to criminal penalties. The trustee will ask if you sold, transferred or gave away any assets, usually for a period of one year or more before filing bankruptcy. The trustee will also ask what you did with the money and may attempt to collect the money or value of the property. You may have sold property in an effort to pay off your debts or no longer had use for a particular item, therefore, it may not necessarily be an issue but it is extremely important to discuss with your attorney prior to filing.

 Cashing Out Retirement Accounts or Equity Lines

Do not cash or take loans against your 401(k), pension or other retirement payment plans and avoid taking out an equity line of credit against your house. If you have, this may be an issue in your bankruptcy. Once the money is liquidated or “cashed out” there may not be exemptions to protect the funds in bankruptcy.

 Running Up Your Debt

If you run up more debt than usual or purchased “luxury” items in the 90 days prior to filing bankruptcy, then the Trustee or Creditor may try to object to your discharge, arguing that you used the credit fraudulently with the intention of never paying it back.

Waiting Too Long

If a creditor is in the process of garnishing your wages, seizing your accounts, repossessing your car or you have a foreclosure sale date on your property, make sure you file bankruptcy in time. For example, if a home sells in a foreclosure sale and the certificate of sale is issued, the bankruptcy will not save your home. Therefore, it is imperative that you meet with an attorney if there are any pending legal actions.

Substantial Assets or Monies Expected from a Lawsuit, Inheritance or Other

If you will be receiving or have received an inheritance, a substantial income tax refund, a settlement from a lawsuit, proceeds from the sale of property or goods, or repayment from a loan you made to someone else, the timing may not be right or you may need to adjust your exemptions with a bankruptcy attorney.