While Bankruptcy often is a way for people to eliminate debts and start fresh, filing Bankruptcy is not something to be taken lightly. It is a serious legal proceeding involving the federal court system, and needs to be treated with respect and honesty.
Let's start with what NOT to do. These mistakes can cost you dearly, and in some cases are illegal. Some mistakes can keep you from receiving a discharge of your debts in bankruptcy, and in the worst case, could result in fraud charges being brought against you.
1. First and foremost, it is imperative that you are always completely honest and open with your bankruptcy attorney. Your attorney is ethically bound to assist you. You are also protected by the attorney-client privilege. As such, it is important that your attorney has all the information available to help you. It is important that you answer all questions completely, even if the questions (or answers) are embarrassing or make you uncomfortable. Your attorney is not there to judge you. We are there to get you the help you need.
In our experience, it is very likely that the one thing that most concerns you will not be a problem, as long as the attorney is aware of the facts from the beginning.
2. Don't hide under a rock hoping it will go away. It will not, and failure to answer lawsuits and garnishments filed against you will not help you. If you have dug yourself into a financial hole, the first thing to remember is to stop digging! Seek help from a bankruptcy attorney at the earliest possible opportunity to ensure that you are protected as much as possible.
3. Do not continue using your credit, especially for large purchases. No new accounts, no balance transfers, no misuse of existing accounts. Using credit when you know that you will not be able to repay the loans is considered fraud and can cause you more problems than it will solve.
4. Do not pay off credit card accounts. This is like throwing money away. These debts will be cleared away in most cases, and paying them off will not allow you to keep the accounts open. In most cases, your bank will know that you have filed and will close your accounts no matter what you do. Further, the amounts you pay immediately before filing will often be retrieved by the trustee and paid out to all your other creditors.
5. Do not try to transfer money or property to friends, family members, family trusts, LLC's or anyone else before filing bankruptcy. This could be considered fraud, and is easily repealed by the bankruptcy trustee.
6. Don't touch your retirement accounts. Using retirement money to pay down debt is a bad idea, especially if you are contemplating bankruptcy. Money in retirement accounts, including 401(k)s and IRAs is usually exempt, and therefore can usually be protected from creditors.
7. Do not pay off debts to friends and family members. This will not keep them out of the bankruptcy process. The trustee can go back even further to get money back form so-called "insiders. If the trustee wants to get back sums paid to family, he will sue them for it. This will cost your family even more in the long run, and will cause them even more headaches than they would otherwise endure.
Even as we hear stories about how the economy is improving, more and more people are still falling behind on mortgage payments, car payments, and credit payments as well as other types of debt. The economic problems facing the country left in their wake a huge backlog of problems, and many people have no reasonable hope of ever digging their way out. Many of these same people are becoming stressed out and depressed, perhaps even causing or contributing to health problems all of which just make the problems worse.
Many of these people are wondering about bankruptcy. Would filing bankruptcy help them get the fresh start they need? Or would it ruin them forever? Have you been thinking that if you must file bankruptcy it brands you as a failure and terminates your financial future?
Bankruptcy is not the kiss of death. The pressure placed upon us by our debts saps us of energy and motivation that could be better spent on our family or our passions. In fact, many famous people have filed for bankruptcy and gone on to be financially successful.
Would you be surprised to know that Donald Trump, Henry Ford and Walt Disney all filed for bankruptcy? Comic book pioneer Stan Lee filed bankruptcy as did the founders of both Hershey’s Chocolate and of of Heinz Ketchup, H.J. Heinz.
Here’s a few more:
Entertainers Jerry Lee Lewis, Chaka Khan, Marvin Gaye and Andy Gibb, Larry King, Kim Basinger, Mickey Rooney, Burt Reynolds, Gary Coleman, Lynn Redgrave, Margot Kidman, Willie Nelson, Tammy Wynette, Merle Haggard, George Jones, Johnny Paycheck, Tom Petty, David Cross, Toni Braxton, Meat Loaf, M C Hammer and Ted Nugent.
Authors Samuel Clemens, (Mark Twain), Frank Baum (the creator of the Wizard of Oz), Oscar Wilde, Susan Powter and Kate O’Brien.
Several athletes including Mike Tyson, Leon Spinks and Joe Lewis, football player Johnny Unitas, tennis player Bjorn Borg and Olympic gold medalist Dorothy Hamill.
Many American politicians also make the list including our 18th president, Ulysses S. Grant, and our 25th president, William McKinley. Former Vice President Levi Morton and presidential nominee George McGovern filed. John Connally, the Texas governor wounded during the assassination of John F. Kennedy in 1963, went bankrupt as well.
As we now know, these people went on to become some of the most financially successful individuals in history. When you realize the businesspeople, entertainers, athletes, and politicians who have filed bankruptcy only to become our country’s leaders, the importance of bankruptcy protection becomes clear. It is not The End, but a new beginning.
Many prospective clients just need to grasp the basics of what exactly bankruptcy is, and what it can and cannot accomplish. There are many great resources available on the Internet to help out.
The following article from Lawyers.com provides a great overview!
"Bankruptcy is a process that gives a you a financial fresh start, freeing you from overwhelming debt burdens. Chapter 7, also called "liquidation" or "straight bankruptcy," is what many people connect with a bankruptcy case. As a debtor, your assets are sold, creditors receive payment, and you are freed from your debts.
There are several types of bankruptcy, and Chapter 7 is generally the simplest and quickest form. It's available to individuals, married couples, corporations and partnerships. Know what to expect if you file a Chapter 7 case, and how you can have a fresh start within a few months.
Eligibility for Chapter 7 You must be eligible to file for bankruptcy, and the rules vary depending on the type of case you want to file. Bankruptcy laws changed in 2005, making it harder to qualify for Chapter 7 relief.
There is a means test for individuals to qualify for Chapter 7 bankruptcy. Your income and expenses are examined to see how they compare to the standard for your state.
For example, if you earn less than the median income for a family of your size in your state, you can file for Chapter 7 bankruptcy. If you earn more, a Chapter 13 case may be your option, where you pay part of your debts over time with your disposable income.
Eligibility also includes mandatory credit counseling and budget analysis. This will address the means testing calculations for you. While there are calculators available on the internet, a bankruptcy attorney is often the best resource to help size up your situation and options.
Filing a Chapter 7 Case Bankruptcy starts with filing an official petition, schedules and Statement of Financial Affairs in bankruptcy court. You must provide:
The automatic stay also prevents creditors from filing new lawsuits against you.
Creditors can ask the bankruptcy judge to lift the automatic stay and let them move ahead with collection efforts or lawsuits. For instance, a creditor could show it needs to take immediate action because property could lose value before your case is closed.
Appointing a Trustee Once you file, a trustee is named to administer your case. Most of the action in your case happens in the trustee's office, not the courtroom. The trustee takes control of your property, unless it's exempt, and starts working through your case.
Exempt Property Is Protected Some property is protected, or exempt from your creditors' claims, and you get to keep it. When determining what is considered exempt, many states allow you to choose and use the state's definition of exempt or the list set out by federal law. Some states require you to use the state's list. Be sure to check your state's laws to find out what applies to your state.
Exempt property can include these property types:
Most Chapter 7 cases are "no-asset" cases, which means that you don't have nonexempt property for the trustee to sell and use to pay creditors. Your bankruptcy petition states whether your case is "asset" or "no-asset." If the trustee doesn't agree, he or she must show why the designation isn't correct.
341 Meeting - Questions on Your Debt Twenty to 40 days after filing your petition, the trustee holds a first meeting of creditors, called a "341 meeting." You must be present. You're placed under oath, and the trustee and creditors can ask questions about your property and debts. Creditors seldom ask questions.
The only responsibility you have after the 341 meeting is cooperating with the trustee and providing any requested information or documents.
Creditors have 60 days after the meeting to convince the bankruptcy court they should be paid and your debts shouldn't be "discharged."
Reaffirming Debts You can also be approached about "reaffirmation" of debts. This is an agreement between you and the creditor that you'll pay off your debt and keep the property, such as a car.
Time Limits Apply to Reaffirm Bankruptcy reforms changed the rules for reaffirming debts, too. Now you have to declare your dedication to a loan within 45 days after the 341 meeting. You can't just continue to make loan payments as they come due.
Purchase Option There is also a purchase option you can use within 45 days of the 341 meeting. For example, you could buy your car by paying the loan balance within that 45 days. This option isn't used much, because most people who file for bankruptcy don't have that kind of money.
Steps to Reaffirm a Debt If you decide to reaffirm a debt, you must file an agreement with the court. The agreement has to disclose:
If an attorney represents you, he or she must certify in writing that you were advised of the legal impact of the agreement, you were fully informed, the agreement is voluntary, and reaffirmation won't create an undue hardship on you or your family.
Discharge and Freedom from Debt Your objective in bankruptcy is discharge, or the court's order to end your liability for your debts, and your creditors' ability to seek further payment. If creditors haven't persisted in trying to get money from you and the trustee within 60 days of the 341 meeting, your debts that existed before the filing date are discharged or canceled.
There are exceptions to discharge, and your attorney can help you determine which debts you may still have to pay. Here is how common debt types may be treated in a Chapter 7 case:
What debts are discharged in Chapter 7?
For debts not to be discharged, creditors must ask the court to decide what they want done with them. If a creditor doesn't ask for a debt to be paid back, they will be canceled.
Denial and Revocation of DischargeCreditors or the trustee can also object to discharge, or seek revocation of discharge, but it's uncommon. Grounds to deny or revoke discharge can include fraud, such as your failure to disclose property, or giving false information during your case.
Take your time when deciding whether to file - the law says you can't file again for two years. If you make the right decisions, it's a quick, efficient way to get a fresh financial start."