The Do’s and Don’ts Prior to Filing for Bankruptcy

In my years of practice, I’ve seen many clients fall into making these common mistakes prior to filing for bankruptcy. This is crucial time to restart your finances and get your life back on track. So I’ve created a guideline to outline to Do’s and Don’t prior to filing for bankruptcy.

Let’s start with the Don’ts.

  1. Don’t use your credit cards.
  2. Don’t take cash advances from credit cards.
  3.  Don’t do balance transfers.
  4.  Don’t pay back money to family, friends, or business partners
  5. Don’t make any major purchases prior to filing bankruptcy such as a home or automobile.
  6. Don’t pay more than $600 on any past due bill.
  7. Don’t cash out retirement plans or 401(k)s.
  8. Don’t take out a second mortgage.
  9. Don’t hide, transfer, or give away property to anyone.
  10. Don’t take out payday loans.
  11.  Don’t put your money in your children’s bank accounts.
  12.  Don’t omit a credit card so you can use after your bankruptcy.
  13. Don’t write bad checks.
  14.  Don’t borrow money.
  15. Don’t make major financial decisions without talking to your attorney
  16.  Don’t get married before filing if your spouse has a high income.
  17. Don’t misrepresent facts to your attorney.
  18.  Don’t run up your credit cards in advance of filing bankruptcy.
  19. Don’t hide anything from your attorney.

Now Let’s go over the Do’s !

  1. Do tell your attorney about all accounts including checking, savings, credit union, or brokerage. Also include accounts closed within the past year.
  2. Do include all assets on your paperwork.
  3.  Do tell your attorney about your businesses including sole proprietorships, LLC/LLP, partnerships, or corporations.
  4. Do list debts to family, friends, or business partners.
  5. Do tell your attorney about liens on your home or unpaid judgments so they can be avoided.
  6. Do tell your attorney about potential claims or rights you have to sue such as worker’s compensation, personal injury, slip and fall, or automobile accident.
  7. Do tell your attorney about all sources of money or income.

 

What Debt Settlement Companies Don’t Tell You

I often get calls from people who have hired a debt negotiation or debt consolidation company and are very upset about how things are being handled. I hear “I was told my debt would be settled but a creditor got a judgment against me and is now garnishing my wages” or “I have been paying this company for months but they have only negotiated with one creditor” or “I was told this would be better than bankruptcy but now I am further in debt and my credit scores keep dropping.”

I would like to explain how most debt settlement companies work. When you call the company, they tell you they can negotiate a substantial principal reduction and get you a lower monthly payment. They ask you to provide the names of your creditors and the amounts owed. You are told to stop paying your creditors and to instead send them a certain amount every month.

What they don’t tell you
1. They put your money in a saving account until it reaches a certain amount. At that point they begin negotiating with your creditors.
2. Your creditors are not being paid while they are waiting for the account to grow.
3. Your creditors don’t have to negotiate and can sue you at any time. Remember, you stopped paying them.
4. The company generally only negotiates with one creditor at a time.
5. Collection calls may start or continue.
6. Your creditors can report your late payments to the credit reporting agencies.
7. Your creditors can report any forgiven debt to the taxing authorities and you could end up owing taxes on it.
8. Your creditors can continue to charge interest on the debt.
9. Your creditors can report any settlement as “paid settled” or “charge-off settled” which negatively impact your credit.