You’ve decided that you need to file bankruptcy. There are things that you should absolutely not do before your case is filed:
1. I’m not going to list all of my debts, because I don’t want to include the debt to XYZ Creditor or my mom in my bankruptcy.
Not a good idea. The law says that you must list everyone you owe. Failure to do so can result in a fine and/or jail time, and having your case dismissed without receiving your discharge. Once your bankruptcy is complete, you can pay any discharged debt that you want.
2. I’m not going to list all of my property. How is the Trustee going to know I have it anyway?
Not a good idea either. The law says that you must list everything you own. The Trustee will do an asset search on you and will find property / vehicles / stuff that is in your name (or was in your name, see #3). It is amazing what the Trustee can find. When s/he finds the property, you may end up losing your stuff that might have otherwise been protected if you had just told your attorney about it in the first place.
3. Ok, I’ll just transfer the property into my aunt / cousin / friend’s name before I file the bankruptcy.
Nope. First, these transfers have to be listed in your schedules. And if you decide to do #2 and not list it, the Trustee will probably find out anyway (remember the asset searches?) Anything that has been transferred in the last year can be undone by the Trustee and you can still lose your stuff; property that might have been protected if you had just told your attorney about in the first place.
4. I know that I don’t get to keep my non-earned income credit part of the tax refund, I’ll just give it to my mom / cousin / aunt before I file.
Nope. That is called a preferential transfer and the Trustee can make your mom / cousin / aunt cough up the money to him. There are better ways to spend down a tax refund prior to filing; talk to your attorney.
5. But I owe my mom $1,000 why can’t I give it to her?
Because this is what is called a “preference payment” that is over $600 and the Trustee can take it. Same thing with paying creditors, if you pay them more than $600 in the 90 days prior to filing the Trustee can take that as well (unless it is a normal contractually due payment.)
6. My telephone number has changed but I’m not going to tell my attorney about it.
Sometimes we need information from you immediately and always need to be able to get a hold of you. Always keep your attorney updated with your current place of employment, home address and telephone number(s).
7. I’m filing bankruptcy, so I am going to stop making my car payment.
Not a good idea if you are planning on keeping it because your vehicle may end up being repossessed before your bankruptcy is filed. If you do not want to keep it then just make sure you keep insurance on the vehicle until it is repossessed. There may be times when you will be advised to not make a vehicle payment (right before a Chapter 13 bankruptcy filing, for instance) but in general, if you plan on keeping the car, keep making the payment.
8. I’m a little short on money, I am going to make a withdrawal from my retirement account.
You should never withdraw money from your retirement account (or receive any type of other funds) prior to filing. There is what is called a “means test” that qualifies you for a Chapter 7 and also helps to determine what your plan payment will be in a Chapter 13. The money that you receive prior to filing is counted against you in this means test. Just Don’t Do It.
9. OK, how about I take out a loan against my retirement account, refinance my house (or take out a 2nd mortgage) or take out a loan against my car for a little extra cash?
No. You are turning debt that you can get rid of into debt that you cannot get rid of if you want to keep the stuff; when you file bankruptcy you will get rid of most of your unsecured debt; however, if you want to keep your stuff you will keep the loans. If you are having trouble financially now, it will get better when you get rid of the unsecured debt but it will make it difficult for you to now have an increased mortgage and/or car payment due to taking out the loans.
10. But I am not sure whether I want to file bankruptcy and am thinking about doing these loans to pay off credit card debt.
Most of the people that I see that took out a 2nd mortgage on their home, refinanced a car or borrowed against their retirement accounts end up owing more than they did before they did the refinancing and have higher payments that they have to keep. You need a home to live in, you need your retirement account for the future, and having a low or nothing car payment is nice. Just think about filing bankruptcy and getting rid of the debt instead of adding to it and possibly losing your home, retirement account and car in the process.
11. I need some stuff and the only way to pay for it is to use my credit cards.
Really bad idea. Once you know you are going to file bankruptcy no more debt for you – do not charge on your cards or take out any loans, or you may find that you will have to pay this debt back and not get it discharged through your bankruptcy.
12. Whew. I’m all worn out now from this. Anything else?
We know that this is a stressful time for you and trust me, if you do any of the above don’ts, your life will be even more stressful. Don’t do anything without talking to your attorney, and make sure you tell your attorney everything, even if you think it doesn’t matter. There is a reason we have that question on the questionnaire.
These pitfalls are why you need to get an attorney who is very knowledgeable in the bankruptcy area, and doesn’t just “dabble” in it – a competent, knowledgeable bankruptcy attorney may mean the difference between a smooth bankruptcy with you keeping your stuff and getting rid of your debt versus a bankruptcy filing where you lose stuff and still end up owing creditors.