Ten Things You Need to Know Before Filing Bankruptcy

Bankruptcy is a tool.  Any tool can be misused which can cause serious damage.  Just ask the idiot who sticks a fork in a live electrical socket.

YOU ARE UNIQUE: Each person has a unique situation, background and goals.  Never take advice from a friend or relative because their situation will NEVER be the same as yours.  After all, you would not take medicine prescribed to your friend, so why would you assume your financial and personal history is the same for bankruptcy purposes?

BANKRUPTCY FRAUD: Bankruptcy is not the same of filling out simple forms.  All bankruptcy cases include at least 70 pages of information, all signed under penalty of perjury.  That means if you lie, hide assets or try to defraud the court or creditors you may find your  “discharge” revoked (this is your bankruptcy protection from creditors) and you referred to the Department of Justice for criminal prosecution.

MARRIED: If a married person files for bankruptcy protection their spouse is not required to file.  It depends on the circumstances (length of marriage, type of debts, age, etc.) and the law of the state where you live. This is a complicated set of entwining laws and practical issues so make sure to talk to an experienced bankruptcy attorney before deciding what works for you and your spouse.

REPAYING FAMILY:  In the 12 to 24 months before filing bankruptcy do not repay any loans your relatives made to you unless you are paying ALL other debts.  This may be “preferential treatment” if you paid your family and did not pay your other creditors.  Your family may be sued by the trustee in order to reclaim those funds.  That will be a very embarrassing Thanksgiving dinner.

SELLING STUFF: Never transfer (sell, trade or gift) any of the things you own, referred to as “assets”, unless they pay you the fair market value of the asset.  Otherwise, the person who got the asset may find they are forced to give the asset to the bankruptcy trustee for liquidation.  This is referred to as “fraudulent conveyance”.  There is a two year look back for these transactions in bankruptcy court, but may be far longer in your state (for instance, Arizona has a four year look back period).

CREDIT REPORT AND PRIVACY: Bankruptcy stays on your credit report for ten years, but it does not mean you have to wait ten years to start rebuilding your credit.  Learning how to rebuild your credit will help you move toward future goals, like buying a home or vehicle.   There is no privacy in bankruptcy – filing bankruptcy means that your personal situation will be open for anyone to read about.

TIMING OF FILING: Sometimes it is not the right time to file for bankruptcy.  It is very important to strategize when, and if, to file.  Issues such as: monies owed to you, debts you have paid, how much you earned in the last six months, are you moving and need to consider a new landlord’s impression, are you changing jobs and a bankruptcy might affect your new hire; the list goes on and on.

YOUR CAR OR HOUSE: Normally you will not lose your home or car just because you file for bankruptcy protection.  It is important that you continue to pay for what ever you want to keep.  But it is also important to know what the bankruptcy trustee may go after.  The trustee has an obligation to liquidate (sell) those items that have value for your creditors, offset by the exemptions used in your bankruptcy.

STOP, I WANT TO GET OFF: You cannot get out of  bankruptcy “just because you want to”. Never use a bankruptcy for the sole purpose of stopping a foreclosure or repossession.  Depending on your unique circumstances you are going to lose your home or car anyway, but now you will have a bankruptcy on your records.  Filing bankruptcy is like jumping off a cliff.  Halfway down you cannot decide to go back to the top of the cliff (that is not how gravity works).  Checking for rocks or sharks before jumping is good planning.  Do the same before filing a bankruptcy.

WHY DID YOU FILE BANKRUPTCY? It is very rare for anyone (other than your attorney or mother) to ask why you are filing for bankruptcy protection.  Everyone involved in the bankruptcy system assumes you would not file for bankruptcy unless you need to.  Besides that, your situation is never as bad as what others are suffering through.

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