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Bankruptcy Dos and Dont's
PRE-BANKRUPTCY DOS AND DON'TS
If the wolves are circling, but you aren't sure that you will have to file bankruptcy, there are some Dos and Don'ts which may protect some of your property if you do eventually have to file.
DOcontinue making payments on vehicles which you intend to keep. Creditors secured by a car or truck can usually repossess the vehicle without notice to you anytime you are in default in your payments. It will ordinarily take longer for other creditors (including those secured by other property) to act on a debt that is in default.
Note: If your car has been repossessed but not yet sold, you may be able to get it back if you file Chapter 13 immediately.
Don't borrow from or withdraw 401k, IRA, and ERISA qualified savings and retirement plans to pay bills. Early withdrawal of these funds makes you liable for penalties and taxes which may not be discharged in bankruptcy. ERISA and 401K funds are exempt from creditors in bankruptcy, as are IRA funds in Michigan (except deposits made within 6 months before filing) and many other states. If you don't use these funds, you are very likely to have them to draw on after bankruptcy.
Don'tborrow money on your home to pay unsecured (i.e. credit card, utility or medical) bills. If you take out a second mortgage on your home, you may be converting debt which would have been discharged in bankruptcy into debt which you will still have to pay in order to keep your home. These additional payments could be high enough to cause you to lose your home.
give "friendly" creditors a security interest in non-exempt property. If you have to borrow money from a friend or relative you could give that creditor a security interest in the property which you own. For example, if you have a car which is not exempt and you are borrowing money from a relative, he or she could take a security interest in the car for the loan. This will reduce your equity in the car, and the likelihood that the trustee will take the car. It will also protect your relative by insuring that they will be paid from the proceeds if the trustee does take the car since he must pay off creditors secured by property which he takes.
Caution: The loan must be a legitimate transaction (you must actually receive the money), and the security interest must be granted at the time the loan is made. You cannot give a security interest for a previous loan. Giving a security interest for an existing loan could be a transfer of a property interest in fraud of other creditors which could result in a denial of your discharge. [§ 727] All laws and formalities regarding secured transactions must be followed, such as placing the creditor's name on the title for loans secured by vehicles and the recording of a deed of trust for loans secured by real property.
pay $600 or more back to relatives or business associates who have lent you money. Payment of a total of $600 or more to an "insider" (which includes relatives and business associates) within one year before you file bankruptcy is a "preference." The trustee may recover preferences from the person that was paid and divide the money between all of your creditors. (Payment of $600 or more to any other creditor within 90 days before the case is filed is also a preference.) [§ 547]
Don'tput property you own into someone else's name to avoid it being taken by creditors or the trustee. That kind of transfer is a fraud on creditors and can result in your discharge being denied [§ 727]. In addition, the trustee can take the property from the person to whom it was transferred [§ 548].
Doreduce the amount withheld from your pay for taxes. If you expect to get a tax refund, reduce your withholding so that you do not get refund. Federal and state tax refunds are routinely taken in Chapter 7, and may effect plan payments in Chapter 13.
Caution: Don't reduce the withholding for tax so much that you will have a big tax bill to pay!
POST-FILING BANKRUPTCY DOS AND DON'TS
CHAPTER 7
If I have already filed a Chapter 7 Bankruptcy for you there are some important DOs and Don'ts which come into play during the pendency of your case.
continue making payments on vehicles which you intend to keep. Creditors secured by a car or truck can usually repossess the vehicle without notice to you anytime you are in default in your payments. It will ordinarily take longer for other creditors (including those secured by other property) to act on a debt that is in default.
Note: If your car has been repossessed but not yet sold, you may be able to get it back if you file Chapter 13 immediately.
Sell or Transfer or give away any Assets you have without contacting me first. The filing of your Chapter 7 Bankruptcy petition creates a Bankruptcy Estate which temporarily comes under the control of the Trustee who is assigned to your particular case. The Trustee's job is to Liquidate (sell and reduce to cash) any property that is not exempt under State or Federal Law. Typically, few Chapter 7's that I file have any assets that are liquidated, and usually if there are likely to be assets in a case, I will have informed you of any potential Trustee liquidation before filing. Nevertheless, DO NOT sell, give away, transfer title, settle any personal injury lawsuits or otherwise dispose of any of your property while your Chapter 7 Bankruptcy is pending.
be concerned if a few Creditors still attempt to Contact you or send you bills or collection letters after filing. 99% of your creditors will stop harassing phone calls or threatening letters shortly after the filing of your bankruptcy. By operation of law, immediately upon the filing of your bankruptcy petition, the "Automatic Stay" goes into effect. This stay prevents all of your creditors from taking any action to attempt to collect a debt. This includes calling you by phone at home or at work, sending collection letters, starting or continuing lawsuits against you, garnishing wages, repossessing vehicles or other security and foreclosing on your home. Occasionally, a creditor will still call or send a letter after the Notice of Commencement of Bankruptcy case has gone out in the mail. If this happens to you, simply send a copy of this Notice to the creditor who is still contacting you or tell them to call my office to verify the filing of your case.
call my office when you get your Notice of Meeting of Creditors (this is your Chapter 7 Court Hearing date and you MUST ATTEND. DOCUMENTATION REQUIRED AT .341 HEARING PURSUANT TO LOCAL BANKRUPTCY RULE 2003-2. Be sure to bring the following items to your hearing with you, neatly organized for the Trustee. Arrive 1/2 hour early and be prepared.
Last edited by muslgrl : 08-14-2006 at 12:57 PM.
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