If you are considering filing bankruptcy, you should consider following my own personal 10 commandments of filing bankruptcy. These are things that you should and should not do in preparation for your case filing. Bankruptcy is not something that that should be rushed into as your actions prior to filing can have consequences on you or possibly others that you care about. I had the chance to discuss the 10 commandments of filing bankruptcy on 1150am KKNW and you can listen to that discussion here:
1. Thou Shall Tell Your Attorney About any and all Assets no Matter The Location
Disclose, disclose, disclose is something you should be telling yourself. As part of a bankruptcy filing you must disclose all of your possible assets. Those considering filing for bankruptcy often ask if they need to disclose assets that are out of the country and the answer Is a resounding yes. A bankruptcy trustee can seek to recover assets no matter their location and you need to make sure you have enough exemptions to protect these assets if you hope to hang on to them. If you do not complete your bankruptcy questionnaire in full or tell your attorney, they will not know they need to exempt the asset or warn you it could be lost.
2. Thou Shall Not Transfer Assets out of Your Name to hide assets Prior to Filing Bankruptcy
If you transfer assets out of your name prior to filing, they may be clawed back by a bankruptcy trustee for liquidation. If you do sell an asset within 2 years of filing you will need to disclose who the asset was sold to, how much was received and what you did with the funds from the sale. If you simply gave your asset away to friends or family a bankruptcy may seek to recover the asset to pay your creditors as you did not get fair market value for it.
Additionally failure to disclose such assets or transfers may result in you not getting a bankruptcy discharge forgiving your debts or being accusing of acting in bad faith and subject to criminal prosecution which you definitely don’t want to deal with.
3. Thou Shall Not pay Friends and Family Members Back for Debts Owed Within 1 Year of Filing
If you pay friends or family back for debt you owed to them within 1 year of a bankruptcy filing, a bankruptcy trustee can claw these funds back or you can make the payment for them. This is called a payment to an insider and must be disclosed in your bankruptcy. Failure to disclose could lead to you not receiving a discharge or criminal prosecution, although the latter part is unlikely.
Therefore it may be advisable to wait a year from when any such repayments were made for best results in your case.
4. Thou Shall Follow the Counsel of Your Bankruptcy Attorney and Provide all Information Requested
If your bankruptcy attorney asks you for information or clarification, it’s likely for your benefit to keep you out of trouble or lessen your risk of losing any assets. This information requested usually consists of completing a bankruptcy questionnaire, providing last 6 months of income information, last 2 years of tax returns, and answering follow up questions regarding the information you provided.
5. Thou Shall Not Incur Large amounts of Debt Right Before Filing for Bankruptcy
If a person charges up their credit cards right before filing, this could be considered fraud and a creditor may object to those charges, which means you would have to pay the debts back. Charges made on luxury items or travel within 90 days of case filing may automatically be non-dischargeable if a creditor were to object. To be safe I would recommend waiting a year between making such charges, depending on the amount that was charged and what was purchased.
A creditor may object at anytime if they suspect there was fraud was involved and you intended not to pay the debt back when the debt was incurred. The more time that goes by, the less of a chance you have of a creditor filing an objection.
6. Thou Shall Not Purchase a Car Right Before Filing Bankruptcy
If you are contemplating purchasing a vehicle right before filing bankruptcy, you had better consult with your bankruptcy attorney. For best results you would want to wait 90 days from the date you purchased the vehicle to allow your auto lender to secure their lien on your car as you don’t want a bankruptcy trustee trying to take away your vehicle and claim it was not properly secured by your bank.
Additionally you should know that there are many lenders out there that will give you a car loan after your case is filed which may be advisable as you would not have to go through the hassle to reaffirm your loan and it would report payments on your credit report post filing.
7. Thou Shall Not Leave Money in a Credit Union Bank Account Post Filing if you Owe Them Money
In Washington state credit unions can offset any funds owed to them from funds you have in bank accounts with them, even post-bankruptcy filing. Also as a general rule you may want to move your funds out of any bank accounts where you owe the same bank money as some banks such as Wells Fargo have been known to freeze accounts, even when they are not supposed to which could cause you issues with your finances post-bankruptcy filing.
8. Thou Shall Not Withdraw Funds From Your Retirement Account in Large Amounts Prior to Filing Bankruptcy
When you file for bankruptcy, you are allowed to protect your retirement accounts funded from your employment. This exemption does not cover inherited retirement accounts. Therefore it would not be in your best interest to liquidate a retirement account to pay creditors prior to filing bankruptcy.
The other consider to keep in mind about liquidating a retirement account prior to filing bankruptcy is that the withdrawals count as income on the means test. If you withdraw the funds within 6 months of filing your case it would be used in the calculation to determine if your income is below the Washington State median income to qualify to file chapter 7 bankruptcy or used to determine your disposable income in chapter 13 bankruptcy.
Finally, you may not be able to exempt the retirement funds if they are not in a retirement account. For example, if the funds are sitting Im your regular checking account, we may not be able to protect all the funds and a bankruptcy trustee may seek to have the funds turned over to pay creditors.
9. Thou Shall Not Rush into a Bankruptcy Filing
As I mentioned previously, bankruptcy is not something that should be rushed into as it may require a lot of planning between you and your attorney to make sure things go smoothly and without complications. Sometimes in makes sense to wait to file if significant debt has been incurred recently or your income has recently dropped to the point where you need to wait a few months to qualify for chapter 7 or make lower payments in chapter 13 as your annual income for bankruptcy purposes is based on your prior 6 months of income.
10. Thou Shall not Wait too Long to File Bankruptcy Either
While it’s never a good idea to rush into a bankruptcy filing, its also not a good idea to procrastinate too long thinking about it. The sooner a case is filed, the sooner you can start rebuilding your credit, stop creditor phone calls, wage garnishments and collections. Another major consideration about waiting to file a bankruptcy case is whether your income will fluctuate to the point where you no longer qualify for chapter 7 bankruptcy or your plan payments would be higher in chapter 13 if you waited.
As you can see, there are many things to think about when considering filing bankruptcy, but if you plan for the filing and get the counsel you need, you can avoid mistakes that may be costly and make sure your case goes smoothly.