Life is full of regrets, big and small. Generally speaking, the most regrettable behavior results from poor planning or a simple ignorance of how best to proceed. This is especially true in bankruptcy. The number of times I’ve wanted to utilize my hot tub time machine (if only!) in the course of my career is beyond counting.
The poor decisions people make before filing for bankruptcy often stem from a refusal to admit that a bankruptcy may be on the horizon. Most clients come to me, unfortunately, when they literally are at the end of their ropes. They spent all the cash in their bank accounts, perhaps pawned some jewelry, liquidated retirement accounts and borrowed money from friends and family. True, bankruptcy will give them some relief, but consistently I think, IT COULD HAVE BEEN SO MUCH BETTER!!!
First, let’s move past the stigma. Filing for bankruptcy does not make you a bad person. Lots of people file for bankruptcy every year. According to bankruptcy statistics published by the American Bankruptcy Institute, in March 2021, nearly 77,000 Americans filed chapter 7 bankruptcy petitions. Were all of these people – or even most of them – irresponsible? Not in my experience. So, if you cannot manage your financial obligations, begin by honestly accepting bankruptcy as an option you should at least consider early on in the process. Before you start liquidating assets and signing contracts with debt consolidation companies, call a bankruptcy lawyer and discuss your options.
Now that we’ve addressed the elephant in the room – that no one wants to see themselves as a bankrupt – let’s talk about what we can do with this newfound awareness. A discussion as to how to manage your affairs before filing for bankruptcy involves maximizing your exempt property and paying only those obligations that you will not be able to discharge. In lay terms, exempt property is property that you get to keep when you file for bankruptcy. Put another way, it is “exempt” from your bankruptcy estate and will not be used to satisfy creditors’ claims.
Stop paying – and using – your credit cards! Credit card debt will generally be discharged, or forgiven, in bankruptcy. So be sure to discontinue any automated payments! You may also consider moving your money to a new bank account if you previously had automated payments set up, to avoid any creditors that have a waiting period before you can cancel automatic payments. And, once you decide that a filing is likely – and therefore the debt will be forgiven – it is considered fraudulent to incur additional debt.
Also related to credit cards – be cautious about transferring credit card debt to lower interest cards. Bankruptcy law gives credit card lenders enhanced protection in the case of cash advances and purchases made within 90 days of filing, and a balance transfer is viewed as a cash advance, so the credit card company can challenge your right to have the debt discharged.
Retirement funds are generally exempt. Therefore, if you have any extra cash, you should max out your annual contribution rather than paying off debts that will be discharged. Note that this does not mean you can put $20,000 into a retirement account before filing and expect it to be exempt. But, you can put in the annual contribution limit under the Internal Revenue Service (IRS) guidelines. The IRS publishes the annual limits on their website. Similarly, do not – under any circumstances – take money out of a retirement account to pay other debts. If you end up filing for bankruptcy under chapter 7 of the Bankruptcy Code, most of your other debts will be forgiven.
If you plan to keep your apartment, pay any delinquent rent. Note that a landlord is not required to let you stay if you do not bring your rent current. If you own your home, and plan to keep it, be certain to stay current on your mortgage since you may be able to claim an exemption for all or a portion of the equity you have in your home if you decide to stay there.
Note that some (but by no means all) tax debt is dischargeable, so do not pay past due taxes before consulting with a bankruptcy attorney. Under some circumstances, student loan debt may also be forgiven or negotiated as well.
Finally, I discourage borrowing money from friends or family unless you truly believe that the loan will either solve your problems (and is not just an attempt to stop hemorrhaging with a band-aid) or the money is to be used to pay for your bankruptcy filing. If you do borrow money, you should explain to friends and family making the loan that if you file for bankruptcy, there may not be sufficient funds to repay the debt and it will be discharged. Note that you can repay them later, voluntarily, with post-petition funds. You should also be aware that, if you do borrow money from friends or family, and end up filing for bankruptcy within a year after you repay the loan, your friend or family member will likely be sued to recover the funds for other creditors. In certain circumstances, it could also lead to denial of your discharge.
While this is not an exhaustive list of factors to consider before filing for bankruptcy, it does illustrate why knowledgeable counsel is key to navigating a bankruptcy case. If you find yourself unable to deal with your financial obligations, you may wish to consider whether filing for bankruptcy protection is right for you. You may be able to discharge or reorganize your debts to make them more manageable going forward. Call me for a free consultation to see if you may be able to eliminate your debts and start fresh by filing for bankruptcy. The consultation is free - the advice is priceless!
Call the Law Offices of Adrienne Woods, P.C. today for a free consultation to see if bankruptcy might be right for you. (917) 447-4321
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