Information in this article does constitute legal advice, is for informational purposes only and may not constitute the most up-to-date information. Readers should contact their attorney for advice to any particular legal matter.
Considering bankruptcy can be overwhelming, but taking certain steps before filing for bankruptcy can make a difference in the outcome of your case. Here are some helpful tips on what to do and what to avoid in the weeks and months leading up to filing your bankruptcy petition.
General Things to Consider Before Filing for Bankruptcy Relief
Before you decide to file for bankruptcy relief, there are a few important factors to keep in mind:
1. Is there a bankruptcy alternative that works better for you?
If you're struggling with debt, bankruptcy may not be your only option. In fact, some people with low debt and sufficient income may benefit more from a non-bankruptcy debt relief option. One such option is the Savvy Method, a data-driven debt payoff method that combines the best techniques of two commonly used methods of paying off debts. The Savvy Debt Payoff Planner app can help you organize your finances and manage your debts to pay them off quickly and efficiently.
Other non-bankruptcy debt relief options include debt consolidation and debt settlement. However, these methods have drawbacks that can be costly in the long run. For example, creditors are not required to work with you outside of bankruptcy, whereas in a bankruptcy case, creditors are bound by bankruptcy laws.
To decide which option is right for you, it's important to compare the pros and cons of each debt relief method. This article can help you get a better idea of whether bankruptcy is the right choice for you. If you're interested in the costs of filing for bankruptcy, you can check out this article here.
2. Do you meet the income qualifications for Chapter 7?
Are you struggling with debt and looking for a way out? Chapter 7 bankruptcy might be the solution you need. It's a fast and cost-effective way to wipe out your debts and start fresh. But before you dive in, there are a few things you should know.
First, you'll need to meet certain income requirements to qualify for Chapter 7. If your income is below the median income for your state, you should be eligible. However, if your income is higher, you may not be able to discharge your debts under Chapter 7. In this case, you may need to consider filing under Chapter 13 instead.
While it may seem daunting, filing for bankruptcy can be a positive step towards financial freedom. With the help of a qualified bankruptcy attorney, you can navigate the process and emerge with a clean slate.
3. Do you need to file under Chapter 13?
Sometimes, instead of filing for Chapter 7 bankruptcy, a person may need to file a Chapter 13 case. Chapter 13 cases can be beneficial if you want to keep your home from foreclosure or make it more affordable to keep your car. Additionally, if you have debts that cannot be discharged in bankruptcy, like back child support, back alimony, or tax debts, a Chapter 13 case may be a better option for you than a Chapter 7 case.
If you file for Chapter 13 bankruptcy, you will be required to create a repayment plan that outlines how you will pay off your debts over a period of three to five years. This plan will be based on your income and expenses, and the court will review and approve it. After the repayment plan is complete, any remaining eligible debts will be discharged.
One of the benefits of filing for Chapter 13 bankruptcy is that it can help you keep your property. Unlike Chapter 7 bankruptcy, where non-exempt assets are sold to pay off debts, Chapter 13 allows you to keep your property while still paying off your debts. Additionally, if you are behind on your mortgage payments, a Chapter 13 repayment plan can help you catch up and avoid foreclosure.
However, there are also challenges to filing for Chapter 13 bankruptcy. Because the repayment plan lasts for several years, it can be difficult to maintain the payments over time. Additionally, the process can be complicated and may require the assistance of an attorney. It's important to carefully consider your options and consult with a professional before deciding to file for bankruptcy.
4. Is any of my property at risk if I file a Chapter 7 case?
When filing for bankruptcy, it's important to understand how bankruptcy exemptions work. These exemptions safeguard certain assets from being sold to pay off your debts. But what happens if your property exceeds the exemption limit? In such cases, a Chapter 7 trustee may sell your property, leaving you with nothing.
However, there is a way to keep your property even if it exceeds the exemption limit. In a Chapter 13 case, you can hold on to your assets by paying a little extra to your creditors through a repayment plan. This way, you can keep your property and still repay your debts.
For more information on bankruptcy exemptions, check out our blog posts on cash in a Chapter 7 case and how the homestead exemption works. These resources can help you better understand your options and make informed decisions when filing for bankruptcy.
5. Do you need a bankruptcy attorney to file for bankruptcy relief?
Although it's possible to file for bankruptcy without an attorney, it's not recommended. Bankruptcy law is complex, and even a small mistake when preparing your forms could lead to serious consequences. For instance, you could lose property in a Chapter 7 case, fail to receive a bankruptcy discharge, or end up paying more than necessary in a Chapter 13 plan. There are many potential pitfalls.
Fortunately, most bankruptcy attorneys offer free consultations. This means you can get advice from a skilled lawyer about your bankruptcy options at no cost. It's a wise decision to take advantage of this opportunity.
Understanding the Lookback Period for Chapter 7
When you file for bankruptcy relief, the Chapter 7 trustee reviews payments made to insiders. Insiders are people who have a close relationship with you, such as family members, business partners, or family members of business partners. The trustee looks back at payments made to insiders within one year before filing for bankruptcy relief. If you paid an insider within this period, the trustee can "claw back" or recover that payment for the bankruptcy estate.
If the trustee decides to recover the payment, they file a lawsuit called an adversary proceeding against the person you paid. The lawsuit demands that the person pay the money to the bankruptcy estate. If the person does not return the money, the trustee can obtain a judgment to pursue under state law.
For transfers of property, the lookback period in Chapter 7 is two years before the filing date of the bankruptcy petition. The trustee can review any transfers of property made within the past two years to determine if the transfers were fraudulent. A fraudulent transfer is typically a gift of property or a sale of property for less than its fair market value.
For example, if you sell your boat to your friend for half of its value 11 months before filing for bankruptcy relief, the trustee can sue your friend to "undo" the transfer. This means that your friend would have to return the boat or pay the estate for the fair market value of the boat. In some cases of fraud, a trustee could go back further than two years, but these cases are rare.
Can I or Should I Max Out My Credit Card Before Filing Bankruptcy?
It's okay to use your credit cards before filing for bankruptcy, but it's important to stop using them once you've decided to file. If you continue using them, some of the debt may not be dischargeable in your bankruptcy case. The dischargeability of recent charges depends on factors such as the reason for the charge, the amount, and the date.
Generally, any credit card purchases over $650 for luxury goods or services made within 90 days of filing for bankruptcy are considered presumptively fraudulent. The same goes for cash advances over $950 made within 70 days of filing. These debts are presumed to be non-dischargeable, and you'll have to pay them despite filing for bankruptcy.
When should you stop using credit cards before filing bankruptcy?
If you're considering filing for bankruptcy, it's important to know that most bankruptcy lawyers advise clients to stop using their credit cards right away. Why? Because if you continue to use your credit cards, there's a chance that some of that debt won't be eligible for discharge. And if allegations of fraud arise, it can make the bankruptcy process even more complicated and lengthy. So, it's best to play it safe and avoid using credit cards if you're serious about seeking bankruptcy relief.
What Should You Not Do Before Filing Bankruptcy?
Before filing for bankruptcy, there are certain things you should avoid doing. Here are some of them:
- Don't repay debts to friends or insider creditors before filing for bankruptcy. You can pay them back after your bankruptcy case is closed.
- Don't sell or transfer any property without first discussing it with your attorney. You may be able to sell some items and use the funds for necessary expenses, but make sure to talk to your attorney first.
- Don't use your credit cards within three months of filing for bankruptcy, except for small charges for necessary expenses. But again, it's best to consult with your attorney first.
- Don't pay off debts that will be discharged in bankruptcy. If you're not sure which debts will be discharged, ask your attorney.
- Don't withdraw funds from your retirement account or equity line without consulting your attorney. These funds are usually protected by bankruptcy exemptions, and withdrawing them could result in losing that protection.
- Don't try to hide or give away assets to friends or family members.
- Don't apply for new loans or lines of credit.
- Don't file for bankruptcy if you're about to receive an inheritance, tax refund, or any other significant amount of money without first consulting with your attorney.
- Don't forget to file your income tax returns. Bankruptcy laws require that you file all required tax returns.
By following these guidelines, you can avoid potential complications and ensure a smoother bankruptcy filing process. It's always best to consult with an experienced bankruptcy attorney who can guide you through the process and help you make informed decisions.
Do You Stop Paying Bills Before Chapter 7?
If you're considering filing for Chapter 7 bankruptcy, you may be wondering which debts you can stop paying. Unsecured debts like medical bills, credit card accounts, and personal loans can typically be discharged in Chapter 7, meaning you won't have to pay them back.
However, if you want to keep your car and home, you'll need to continue making loan payments. Additionally, alimony and child support payments cannot be discharged in bankruptcy, so you'll need to keep up with those as well. While most student loans and tax debts are not dischargeable, it's worth speaking with a bankruptcy lawyer to explore your options. In some cases, old tax debts and student loans may be eligible for discharge in bankruptcy.
Get Help Filing a Bankruptcy Case From A Bankruptcy Attorney Near You
If you're struggling with debt and considering filing for bankruptcy, we can help. Our team of experts is here to guide you through the process and answer any questions you may have. We're happy to provide you with more information on filing for bankruptcy and how it can benefit you.