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Should and Should not in Bankruptcy

What you should and should not do if you are considering filing bankruptcy

With a better understanding of the bankruptcy process, your fresh financial start will be much more smooth and stress-free. Here are some pointers regarding the things that would hurt you and help you if are going to be filing a bankruptcy petition.

DO NOT transfer, sell or give away any of your assets, if at all possible. If you have to, keep careful records of details of the transfer, and be prepared to explain why it was reasonable. For example, if you have to sell a car to help pay for living expenses, this is reasonable, as long as you sell the car for fair market value (as opposed to gifting it to a friend, for example). As another example, if you have a habit of making regular donations to charity, this is fine as well, particularly if you also have a habit of keeping supporting documentation.

DO NOT pay back some creditors and not the others who are similarly situated. Court wants all creditors who are in the same boat to be treated the same. If you show a "preference" to a creditor, the court may ask you to pay the same amount of money to other creditors as well. This gets particularly complicated (and bothersome to the court) if you repay creditors who are your friends or relatives shortly before the petition is filed.

DO NOT close bank accounts, if possible, and avoid transferring account balances or withdrawing large amounts of money from financial accounts. This raises a red flag and prompts questions regarding what happened to the money.

DO keep copies of all of your recent statements, particularly if they are related to assets that you wish to keep, such as mortgage bills and lease agreements. When the bankruptcy case is filed, often the banks stop sending statements to debtors so that it doesn't seem like they are pressuring debtors to pay. While this may be a relief, what if you actually want to continue making payments on the loan, for example, for the mortgage on your home? What if you actually want to receive a reminder of when the payment is due, and where to send the payment, and how to contact customer service? While the lender should resume sending statements if you so request, don't put yourself in a situation where you incur extra charges and extra hassle because you are missing information about your account. In addition, it's important to have recent statements on hand because the court may want to verify what your loan balances were at the time of the filing of the case, or the terms of your agreements.

DO keep clear records of all of your income in the year before the bankruptcy petition may be filed. This encompasses income from all sources, such as wages, business income, rental income, child support, alimony and other regular contributions to your household by others, royalties, social security and disability payments, and so on. First of all, all sources of income have to be disclosed when you file the case and second, sometimes the trustee wants additional details about your income sources. If you are married and are filing the case alone, you also have to keep and be able to provide records about your spouse's income since the court wants to have a complete picture regarding your household's finances.

DO know or find out what your assets and the assets of your spouse are worth.  This has to be disclosed in the bankruptcy petition, and it helps determine what type of bankruptcy relief is most suited for you, and how much your creditors could get back.  Have an idea about the value and condition of your home, cars, timeshares, business, stocks, cash surrender value of life insurance policies, artwork, tools and other belongings.  If any asset is unusual and has significant value, and you are not sure how much it could be worth, ask a professional for an opinion.

DO keep records of all of your creditors' (and potential creditors') names, addresses, account numbers or any other identifying information. In order for creditors to stop trying to collect from you, they need to be notified of your bankruptcy, so it's important to list anybody who you think may have a claim against you. Be sure to list all of the collection agents, all of your personal loans, as well as medical bills which you are not able to pay. Run a credit report, if necessary. If somebody may bring a claim against you but has not yet, list them in any case (for notice purpose only) to be on the safe side. If you are not sure of the amount, estimate or list a potential creditor for "notice only." Most frequently, this is an issue with medical bills. Let's just say you had surgery a month ago, and it's not yet clear which portion of the bill insurance will pay for. If you may be potentially responsible for part of the bill, even if you have not received final accounting from the hospital yet, disclose this potential debt in the petition.  Last but not the least, be sure to keep track of any loans or leases you co-signed, as they are your liabilities as well.

DO decide what you would like to do with respect to each of your properties, long-term contracts and leases. You will have to provide something called "Statement of Intention" in a Chapter 7 case, and a proposed plan in a Chapter 13. Your attorney will help you by discussing your budget and by calculating how your case will be different depending on which assets or contracts are kept. While you may change your "Statement of Intention" and the Chapter 13 plan after the case is filed, it introduces additional hassle, additional opportunity for creditors to object, and possibly additional legal and administrative fees. With respect to long-term contracts and leases especially, you absolutely have to decide what to do with them within a certain limited time period after the case is filed. If you do not take an affirmative step to reaffirm or assume such leases or contracts, then by default, they will be rejected. After all, if you are filing a bankruptcy case, the court does not want you to be stuck with any extra liability. The idea is to let you emerge from bankruptcy as financially free as possible.

These are the major issues that come up.   Your attorney will be able to advise you if your local trustee or judges have a tendency to zoom in on specific questions or issues.

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