People are not sure how the bankruptcy process works, so they start doing things to prepare for bankruptcy before talking to an attorney. They come in after they have made all these changes, and sometimes we find that people have made their situation more complicated when they are being goodhearted about it but they did not really know what they are doing. I tell people that if there is just a one percent chance of them filing bankruptcy, they need to get a free consultation from their local bankruptcy attorney and look at all their options and see all the pros and cons. They also need to find out the mistakes to avoid and do that before they start making any changes to their situation.
What Are Some Mistakes That Make Bankruptcy Either Impossible To File Or More Complicated?
The most common situation is where somebody repays a family member right before they file a bankruptcy case. Anything done shortly before filing bankruptcy is looked at very carefully and is looked at even more closely when they are dealing with a family member. The easy work around for that is for the person to repay the family member after the bankruptcy. If it is a chapter 7, then they just wait 90 days, or they could pay the day after filing the case because it would not make a difference with a chapter 7.
Paying someone the day before the bankruptcy is filed opens up the door for the trustee to go after the money that was paid to the family member. If the person who files bankruptcy pays them the day after the chapter 7 bankruptcy is filed, then there is nothing the trustee can do to go after that money.
Can The Trustee Force The Family Member To Give The Money Back?
The trustee could force the family member to give that money back. It would probably not be worthwhile if it was under $1,000, but some people get their tax refund and then pay $3,000 to $5,000 back to a family member because they helped them during the course of the year and their agreement was to pay them back when they got the tax refund money. The trustee can go after that $3,000 or $5,000 payment, so if someone makes a payment to a family member and it is already done then they cannot undo it, but the work around is for the person to wait 366 days to file that bankruptcy case so it is not on the radar screen and the trustee would not be allowed to go after that payment.
Would Someone Be Allowed To Buy Something On A Credit Card, Like A Dishwasher?
The question becomes how much they spent and how soon before the bankruptcy filing it was purchased. There are a lot of different factors to look at, like whether it was a luxury item or just a necessity? How much did it cost and were there any payments made towards it? I tell people to just leave things as they are and where they are, and to come in so we can have a look at everything.
The biggest problem is now that the baby boomers are getting older and reaching retirement age, they will get a home equity loan to pay some of their bills and will come in to file bankruptcy to take care the rest of the bills. I tell them that we can take care of all the remaining credit card debt but if they had come in before they got that home equity loan, we could have taken care of all the credit card bills and they would not have a home equity loan payment right now. There is no way to undo or get rid of that home equity loan in bankruptcy. They need to either find a way to pay it or find a family member to pay it or find a family member to move in with.
What If Someone Cashes In Their 401k Or Other Retirement Plans?
This is the other big concern with baby boomers. They clear out their 401k, hopefully pay all the taxes, pay their credit cards or what they can and then come to my office and say they still have other credit cards that they can’t pay off. The only thing worse than filing bankruptcy is cashing out their retirement to pay some bills and then having to come into my office to file a bankruptcy to handle the rest of their bills. Their retirement is protected and exempted so nobody can touch it but them. They could have filed a bankruptcy, and kept all of their retirement for when they are retired and don’t have the ability to earn an income stream, but if they used it to pay off their creditors, then they are stuck.
Do People Either Forget Or Intentionally Try To Hide Some Kinds Of Assets When They File Bankruptcy?
The rule of thumb here is to list it or lose it. If someone did not list something they owned then technically they would not get it back when the case was over. They need to make sure to list everything and have all cards on the table face up, so we can identify if there is a problem, and see if there is a work around. Usually our questionnaires are pretty thorough in that they may ask some things three different ways on different pages. It is fine if they are all lined up and everything is in there but sometimes some people may answer one question one way and then the other two the other way, so that is just a way to flush out if there are any other assets.
This is typically not a problem but lately there have been situations where somebody sold a vehicle to somebody, maybe a family member or friend, and that person never transferred the title of that vehicle. It is usually an older vehicle so it is really not that big a problem, unless somebody is in a car accident and does not tell the person about it. If that car accident claim is not mentioned in the bankruptcy asset list, then they may not be able to go assert that car accident claim after the bankruptcy case is filed.
For more information on How Different Types of Assets are Managed in Bankruptcy, a free initial consultation is your best next step. Get the information and legal answers you’re seeking by calling 210-930-7000 today.