1. Clearing out your retirement account to pay debt
Your 401(k) is exempt in bankruptcy. Nothing is more sad than meeting with a client who has completely cleared out his or her (or both of their) retirement accounts only to find that they are still in need of a bankruptcy filing. Only dip into retirement if you are almost positive that you will be able to pay off your debt with the distribution. Be realistic! If you and your spouse have both been laid off and you are cashing out your retirements to get current on credit cards this may just be a stopgap. Better to meet with a bankruptcy attorney to explore your options than to file a cash out your retirement AND need to file a bankruptcy. Also, keep in mind that you may be subject to a penalty and income tax for accessing these funds.
2. Deed your (car, house, or anything else) to a relative, friend spouse, etc.
Most folks believe that they are likely to have their house, car, etc., taken in a bankruptcy and think it would be a better idea to transfer title to one of these assets to someone to "hold" while they are in bankruptcy. Nothing could be more wrong. If you have transferred property to an insider (typically a relative or business partner) within the 2 years prior to the filing of a bankruptcy the trustee can avoid (undo) the transfer and it remains your asset. Further, depending on the state that you are in you are likely within your rights to own that asset and go through bankruptcy without surrendering it. Meet with an attorney in your area prior to transferring anything.
3. Pay back relatives, doctors, friends, etc.
People are always more interested in paying back their parents, friends, or any other person they may see often or need the service of in the future rather than paying back credit card companies or loan obligations. This is understandable. However, you may be doing more harm than good by paying back money on an antecedent debt. Bankruptcy code dictates that any transfer of funds more than $600.oo within the 90 days prior to the filing of a bankruptcy by an insolvent debtor is a preference payment. This means that you have preferred one creditor over another and the general premise of bankruptcy law is that similarly situated creditors should be treated equally. So, if you pay your doctor $1,000.00 within the 90 days prior to the filing of your bankruptcy the trustee can go back to the doctor and legally recover those funds to spread out equally among your creditors. If you are paying back a relative the look back period is 2 years. So, you are best served not to pay back these creditors prior to the filing of a bankruptcy because they will likely hear from your bankruptcy trustee who will ask for the money back and may sue the creditor if necessary to recover the funds.
4. Believe the debt collectors
Chances are that if you are considering bankruptcy it is, in part, because creditors have started to contact you regarding outstanding debts. Do not let a debt collector talk you into an automatic debit of your account to repay a debt. If you have the money to pay on a debt, send them a check. Once you have given a debt collector access to your account they may take debits more often than agreed upon or for more money than agreed upon. Most people will find that once you have granted a creditor this access that their bank has little interest in becoming involved in the dispute and that the only remedy is to close the bank account in order to prevent the creditor from unfettered access to the account. Also, take anything a debt collector tells you with a grain of salt. Collectors are often paid based on the amount they collect and are likely to tell you anything they believe might lead you to make a payment.
5. Believe that your creditors will not sue you or that they will agree to a "reasonable" repayment
Do not make the mistake of believing that creditors have no recourse to sue or that they won't sue because it is not very much money. Creditors have a board of directors and are looking out for their bottom line. They very well may sue you. And if they obtain a judgment they may have the ability to freeze your bank account to obtain their money or to garnish your wages. Do not make the mistake of believing that a judge will care that you can't afford to have your check garnished or your last $1,000.00 was in that bank account. Subject to applicable exemptions, if you owe money to creditors they do have remedies and will not hesitate to use them.
6. Try to be sneaky or "smarter" than bankruptcy
Do not insult the intelligence of your bankruptcy trustee or attorney by trying hide any money or assets. I have heard this question many times..."How will anyone know if I"........(fill in the blank with hide money, assets, etc). The answer to this question is that your bankruptcy petition asks your many, many financial questions and you are required to answer these questions under the penalty of perjury. There are people working for the United States Trustee's office where you live whose job it is to try to detect when assets are being hidden by a debtor. In the event that you are found to have committed perjury on your bankruptcy petition you will likely be punished criminally in federal court. It is not worth it. Do not hide anything. Be open with your attorney because that is the only way that he or she can help you legally navigate the bankruptcy code.
7. Take funds you have on hand and pay off a car, camper, house, etc.
Depending on the chapter of bankruptcy that you file and the state you are in, a specific monetary amount of your assets will be considered "exempt," or beyond the reach of the bankruptcy court. This means that you are entitled to have so much stuff that you can keep in spite of the fact that you filed a bankruptcy. If you pay off an asset with a lien on it you may find that you now have an asset that is not exempt in the bankruptcy because you have more equity that permissible in that asset. Speak with an experienced bankruptcy attorney before paying off an asset.
The underlying theme is that you need to be advised if you believe you may need to file a bankruptcy in the future in spite of the fact that you are likely using your best efforts to avoid bankruptcy. Not much about bankruptcy is common sense. In fact, it is my opinion that much of bankruptcy law is counterintuitive. Please keep in mind that this is general advice and anyone in need of bankruptcy advice should consult with a bankruptcy attorney. As always, I am happy to speak with those who find themselves in a difficult financial situation here in Indiana. I can be reached for an appointment at 317-575-8222 or contact me at www.halcombsingler.com.
Halcomb Singler, LLP, is a debt relief agency. It helps people file for bankruptcy under the bankruptcy code. No attorney-client relationship with the firm of Halcomb Singler, LLP, is created through this blog. Also, please note that Erika Singler is an attorney licensed in Indiana and does not seek to practice law in any jurisdiction in which they are not properly authorized to do so. The information contained in this blog is general in nature and should not be relied upon for the circumstances of any individual(s) or businesses.
Halcomb Singler, LLP, is a debt relief agency. It helps people file for bankruptcy under the bankruptcy code. No attorney-client relationship with the firm of Halcomb Singler, LLP, is created through this blog. Also, please note that Erika Singler is an attorney licensed in Indiana and does not seek to practice law in any jurisdiction in which they are not properly authorized to do so. The information contained in this blog is general in nature and should not be relied upon for the circumstances of any individual(s) or businesses.
