Often, clients consult with an attorney regarding a possible bankruptcy after they have taken actions that can cause them problems with a bankruptcy case. Usually, these things are done because they misunderstand what their rights and responsibilities are when they file a bankruptcy case. Most bankruptcy attorneys find that their clients would have been in a much better position if they had sought legal advice months before they actually came in for their first consultation. These are the most common things that people who are considering bankruptcy should remember:
1. DO NOT USE YOUR RETIREMENT, SAVINGS, OR HOME EQUITY TO PAY CREDIT CARD BILLS
Many people do not realize that their retirement accounts, savings accounts, and home equity are usually safe from creditors, both inside and outside bankruptcy. Before using up those assets to pay unsecured debts, such as credit cards, medical bills, signature loans, and other debts, you should consult with an attorney and get advice about your options. Once those assets are gone, it is very difficult to rebuild them, and too often, people end up filing bankruptcy only after they have used up all of their assets in a futile attempt to keep their heads above water.
2. MAKE A LIST OF WHAT YOU OWE AND COMPARE IT TO YOUR INCOME
Often, people are afraid to learn the truth about their own financial condition, and have only a vague idea of how much they actually owe their creditors. Add up the balances on your credit cards and other bills, and draw up a budget based upon your current income. You may find that your attempts to repay your debts are unrealistic, and that bankruptcy or some other option may be the only way for you to ever get out from under the burden of debt and rebuild your financial security.
3. RECOGNIZE THE DANGER SIGNS
If you are making only your minimum credit card payments, using your credit cards to buy necessities such as groceries and gasoline, and are unable to handle even the most minor emergencies, you should consider getting some advice about your options. Getting caught in the endless cycle of making minimum payments and then charging your credit cards up to the limit again each month just to stay afloat is a dead-end street. You are paying sometimes as much as 35% interest just to use your own money to buy the things you and your family need to survive.
4. STOP PAYING DEBTS THAT CAN BE DISCHARGED IN BANKRUPTCY
Credit card debt is almost always dischargeable in bankruptcy. Even if you make enough money to pay back some portion or all of your credit card debt in a bankruptcy case, the repayment will be at 0% interest. The money you are using to pay those creditors could be much better used to pay off such things as car notes and other secured debts, and to get caught up on the things that your family needs.
5. STOP USING CREDIT
If you are considering bankruptcy, you must also stop using your credit cards and not incur any other debt. In particular, it is very unwise to take out cash advances, charge your credit cards up to the limit, or buy anything unusually expensive with your credit cards before filing bankruptcy. Some of those actions could be considered fraudulent, and you might have to repay all or some of those amounts, which would make filing a bankruptcy case much less helpful to you.
6. DON’T GIVE AWAY MONEY, PROPERTY OR ASSETS
People often consider transferring property to a family member, paying back a “loan” to a friend or family member, or otherwise attempting to conceal or safeguard assets before filing bankruptcy. Usually, those things are unnecessary, since most people can keep all of their property when they file a bankruptcy case. Such actions may be considered fraudulent and create problems that would otherwise not have existed. You should always consult with your lawyer before transferring or giving away property if you are considering bankruptcy.
7. PULL YOUR CREDIT REPORTS
Whether you decide to file a bankruptcy case or not, it is a good idea to pull each of your credit reports every year and see if there is any indication of fraudulent activity or inaccuracy on your reports. You are entitled to one free credit report each year from each of the three credit reporting agencies. The Web site for the free reports is AnnualCreditReport.com. There are other credit report sites that are heavily advertised but are not free, and charge fees for credit monitoring, credit scores, and other unnecessary services. If you consult with a lawyer regarding a bankruptcy, you will need to provide your credit reports so that none of your creditors is excluded from your case, and it would be helpful to have that information at the time of your first consultation with a lawyer.
8. FILE YOUR TAX RETURNS
If you have not filed tax returns that have become due, you must do so before you can file a bankruptcy case. You will have to provide your last two tax returns to the bankruptcy trustee once your case is filed, and the IRS is informed of every bankruptcy filing. If there are tax years for which you have not filed returns, the IRS will file a claim in your case and possibly assess much more in taxes than you actually owe. It is best to file your own return so any amounts due will be as accurate as possible.
9. CONSULT WITH AN EXPERIENCED BANKRUPTCY ATTORNEY
Bankruptcy is a very complex area of the law, and you should find a lawyer who is experienced and well-versed in that field. Be sure that your case will be handled personally by a lawyer from start to finish. Many of the large bankruptcy “mills” will assign your case to a paralegal, and there will be very little involvement by an attorney unless a problem arises. If a lawyer is handling your case from the beginning, any potential problems can usually be taken care of before they become real problems.
10. TELL YOUR LAWYER EVERYTHING
For example, if you have a piece of real estate or other property that you don’t want to lose, the best way to protect it is to tell your lawyer about it. Your lawyer will be able to advise you about how to protect your property, but only if he or she knows all the facts. When your case is filed, it will be assigned to a trustee. The trustee’s job is to make sure that everyone plays by the rules, and he or she will often consult county and state records to determine if a debtor owns real estate, vehicles, or other property that is not listed by the debtor in the paperwork filed with the court. Bankruptcy cases are filed in federal court, under penalty of perjury, and bankruptcy fraud is punishable by large fines and imprisonment for terms up to 20 years. It is not worth the risk to try and conceal property from your lawyer or the trustee, so tell your lawyer everything so you can be protected and receive the benefit of your bankruptcy discharge.