After meeting with hundreds and hundreds of potential clients during our free consultations the same issues arise over and over again. The following are the top ten most common issues that should be addressed or followed prior to filing either a chapter 7 bankruptcy or chapter 13 bankruptcy case.
10. Do Not Wait To Speak To An Experienced Bankruptcy Attorney
Even if you are not ready to file bankruptcy speaking with an experienced bankruptcy attorney will give you the information you need to make educated decisions. To determine if you are speaking with an experienced bankruptcy attorney, ask the attorney how many other areas of law they practice, how long they have practiced bankruptcy law, how many bankruptcy cases have they filed and to name the trustees in the jurisdiction and what document requirements each trustee requires. If the attorney does not know who the trustees are and what each of them requires they do not regularly file bankruptcy cases. One the most common problems we face is meeting with potential clients when it is already too late. If you have been served with a summons and complaint you need to speak with a bankruptcy attorney. If you owe taxes and the IRS or FTB has indicated they are going to garnish your wages you need to speak with a bankruptcy lawyer.
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9. Review Your Monthly Expenses
All consumer bankruptcy petitions include Schedule J. Schedule J is the estimate of the average or projected monthly expenses for your household at the time the bankruptcy case is filed. Prior to scheduling a free consultation with an experienced bankruptcy attorney take a few minutes and review your bank account statements and get a better idea of where your money is going each month. This will help to determine if you have any disposable income available to creditors.
8. Make Sure All of Your Tax Returns Are Filed
In 2005 the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) provided new guidelines for the filing of tax returns and bankruptcy. If you file for bankruptcy you will need to provide your tax return for the previous year, or the current year if requested. If you fail to file your return that becomes due after you file for bankruptcy the IRS can request dismissal of your bankruptcy case. Section 1308 of the Bankruptcy Code requires filers of chapter 13 bankruptcy cases to have filed all of their tax returns for the previous four years before the filing of the bankruptcy petition. This is one of the standard questions asked by the standing chapter 13 trustee at the meeting of the creditors.
7. Review and Document Self-Employment or 1099 Income
If you are self-employed or receive 1099 income it is essential that you know what your income is and what your expenses are for each of the six-months prior to filing for bankruptcy. Just like in Number 6 below, the Means Test uses a six-month average of your income to determine if you have disposable income available to creditors each month. Determining what your take home pay is when self-employed or receiving 1099 income is always more time consuming, but absolutely necessary prior to filing bankruptcy.
6. Save Your Pay Stub or Proof of Income Each Month
In 2005 Congress passed the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) changing the bankruptcy code and creating what is commonly called the Means Test. The Means Test is based upon local and national standards for expenses. The Means Test also uses the six-month average of your gross income extrapolated to a twelve months. You will need all six months of your pay statements or other proof of income.
5. Do Not Take a Cash Advance on a Credit Card
Taking a cash advance close in time to filing bankruptcy can be a huge problem. This can be a problem for the same reasons detailed in Number 4 listed below. It really depends upon the circumstances, but if you take a $5,000 cash advance on a credit card three weeks before filing bankruptcy you will probably hear from the credit card company when you file bankruptcy. An adversary alleging fraud could be the likely result.
4. Do Not Continue to Use Your Credit Cards
One of the most common complications in a consumer bankruptcy is the use of credit close in time to filing for bankruptcy. The problem is the recent use of credit is circumstantial evidence that the user never had the intent to pay the debt back. If you are unable to pay your bills as they come due how can you incur more debt? If you are not making payments to your creditors do not continue to use your credit cards. If you are having trouble paying your credit cards and are missing payments regularly you need to stop incurring more debt.
3. Do Not Transfer Money or Assets to Friends or Family Members
The simple transfer of a car to a friend or family member before filing bankruptcy to reduce your assets is not allowed. It must be disclosed and will only complicate your bankruptcy case. When filing bankruptcy the sole goal is to successfully discharge all of your eligible debts. Transferring assets in an attempt to hide assets will only complicate your bankruptcy case and possibly have your right to a discharge take away.
2. Do Not Borrow Funds or Take an Early Withdrawal From an Individual Retirement Account or 401(k) Plan
Bankruptcy provides exemptions to protect assets such as retirement funds. We meet with client after client that has unfortunately borrowed or withdrawn from their retirement accounts all of their retirement money trying to pay off debts or stay afloat. You must weigh all the positives and negative before choosing to withdraw or borrow against your retirement accounts. Bankruptcy provides exemptions that can protect for the average person all of their retirement funds. You can file bankruptcy and still keep your retirement.
And The Most Important:
1. Disclose All of Your Income, Expenses and Assets
Anyone that files for bankruptcy protection must disclose all income, expenses and assets in their petition. The backbone of bankruptcy is the automatic stay, but the body is treating creditors according to the type of debt owed and the priority of payment of debts required under the bankruptcy code. Without full disclosure treating all parties fairly cannot take place. It is not the bankruptcy court's duty or the duty of the trustee assigned to your case to find assets. It is the bankruptcy filer's duty to be open and honest about their income, expenses and assets in exchange for the discharge of their debts. If you have not fully disclosed everything you may not only lose your right to a discharge of your debts, but criminal charges could be filed and fines imposed.
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