Problems to Avoid
Wait Until After Your Bankruptcy is Over to Pay Your Friends and Family
If you owe debts to family, relatives or friends, wait until after your bankruptcy is over to pay them. The Court is concerned that you will favor these “insiders” over creditors that you do not have a personal relationship with. Accordingly the trustee may be able to recover payments you made within one year to an insider. The law in this area is complicated and there are some exceptions. Contact us if you have any questions.
Don’t Pay-Off Credit Card Debt With a Consolidation Loan Secured by Your Home
Many people take out a home equity loan and use the proceeds to pay-off credit card debt. Later they find that they have trouble making both the mortgage and home equity loan payments and start thinking about bankruptcy. Unfortunately, in order to wipe-out a home equity loan you generally have to surrender your home. In contrast, credit card debt is generally easily wiped out in bankruptcy without surrendering your home.
Don’t Incur Significant Credit Card Debt Just Before Filing Bankruptcy
Once you decide to file bankruptcy, stop using all your credit cards. Large recent charges, cash advances or balance transfers can cause you trouble. When you file bankruptcy the banks that issued you credit cards will typically review your account for questionable activity. So if you charge a $4,000 Caribbean cruise on your credit card and then file bankruptcy when you get back expect problems in your bankruptcy. The bank will likely file an objection arguing fraud (e.g., you had no intention of paying this debt when you incurred it). On the other hand, if you charged that trip a year ago when you had a good job and could afford to make the credit card payments, but recently lost your job and now cannot, you probably don’t have anything to worry about.
Don’t Forget to List a Creditor
Debts to a creditor not listed in your Chapter 7 bankruptcy might be discharged anyway. But it can be difficult convincing the omitted creditor of that. If you forget to list a debt in a Chapter 13 bankruptcy it will not be wiped out. So regardless of what chapter you file, make sure you tell us about all your debts. If you are concerned that you may be forgetting creditors, you can get a free credit report.
Reaffirming Payments You Cannot Afford
You may love your boat but can you really afford the $700/month payment? If you reaffirm and later start missing payments the creditor can repossess the collateral, sue you and then garnish your wages for any deficiency (i.e., the balance on your loan after subtracting the sales price of the repossessed collateral at auction). If you surrender the collateral in your bankruptcy the debt is wiped out, even if you owe more than the collateral is worth.
Sometimes clients will keep making the payments & keep the collateral with out reaffirming. This is called ride-through and it has a number of pros and cons.
Don’t Fail to Appear at Your Meeting of Creditors.
If you fail to appear at your meeting of creditors your case will be dismissed unless you have a very good reason (for example you were hospitalized or incarcerated at the time of your hearing). Having to work or take care of your kids are not acceptable excuses for failing to appear.
Don’t Transfer Assets Prior to Bankruptcy
If you gift assets to friends or family prior to filing bankruptcy the trustee can recover those assets for the benefit of creditors. Selling assets at less than their true value results in the same problem.