Some Good “Tips” On What NOT To Do

When Preparing To File For Bankruptcy

By Tony Arnest

For any number of reasons, people can find themselves in financial difficulty and decide that enough is enough; it's time to file bankruptcy. The goal is for a “fresh start” from the day-to-day burden of trying to pay bills when there just is not enough income to do so.

When it happens to you, and you have concluded that Bankruptcy may be your best option to resolve your financial problems, you will want to avoid these common mistakes which can have very severe negative implications on your goal to obtain a satisfactory Bankruptcy outcome.

· Don't lie, don’t lie, don’t lie!!

Court statistics have shown that the vast majority of those who file for bankruptcy protection do qualify. Those who don't will generally have other options available to them. Deciding to file anyway -- despite not qualifying -- by leaving out assets or income could result in the case being dismissed and the filer being barred from filing on those particular debts ever again.

· Don't leave out any of your income or other monies you receive, even gifts

Interestingly, some people think that a second, part-time job does not count as income. All household income must be included, even perhaps the $500 per month your minor daughter earns working part time while in the local retail store and gives to you to help pay the bills. If you want to claim her as a dependent in your bankruptcy, you must include her income.

· Don't leave out any cars or other vehicles - i.e. boats, planes, etc.

We hear all the time… "I don't want to lose my car. Why are you listing it in the paperwork?" The car is an asset (or a liability if it is secured by a loan). You are required to list all your assets and all your debts in your Bankruptcy Schedules. The court-appointed trustee reviewing your case must know about every car or vehicle you own. Even a car driven by your daughter, which was never transferred into her name, must be listed. And don't transfer it to her prior to filing. That's the best way to lose it.

· Don't leave out car loans, or any loans of any kind, for that matter

You must notify all your creditors, even car lenders, that you have filed bankruptcy. You can usually keep the car, but the lender may have specific requirements you must follow. Failure to notify the lender may result in the loss of the car.

· Don't leave out any creditors – that is anyone to whom you own money or a debt

Bankruptcy attorney hear frequently from their clients that they’ve heard you can leave our a certain creditor if you are current with them or don’t own them anything at the present time. For example, a client may say he or she can use a particular credit card even though that card was not listed in the bankruptcy. Why, because there is no outstanding balance. This is NOT correct. The majority of credit card companies centralize the processing of credit card payments and services. Card companies will know that you filed for bankruptcy protection even if you don't have a balance on that particular card. So don't try to hide a credit card. You can get new credit after the bankruptcy. It is not worth it to leave out any creditor and run the risk of your entire Bankruptcy case being tossed out for failure to list all your creditors.

There is one big exception to this rule, and it pertains to credit unions. You may be able to keep an account with a credit union after filing for bankruptcy. If this applies to you, you will want to discuss this with your Bankruptcy attorney.

· Don't transfer assets out of your name to anyone else before filing

Transferring an asset prior to filing for the purpose of protecting that asset is illegal. Just because you have an asset you want to protect does not mean you can give it away. Your bankruptcy attorney can discuss how to legally protect an asset that might otherwise be at risk.

· Don't pay back family prior to filing – blood is not thicker than water in this instance!

You may owe your sister $15,000 and have every intention of paying her back. Just don't pay her back in the 12 months prior to filing. No matter what you think, she is still a creditor like your department store or bank where you hold your credit card. However, the bankruptcy code looks even more harshly on payments made to family prior to filing. It is often call a “preference.” And preferential treatment to family members over other non-family creditors can be unwound!! You will need to understand how the rules work concerning payment to creditors prior to filing your case.

· Don't forget to list all potential or pending lawsuits you have against anyone or they have against you

You are suing your former employer for unpaid wages, or you are suing your former best friend for unpaid rent. Those are assets and must be listed as such in your bankruptcy paperwork. You may be able to continue with the case, but the court-appointed trustee must know about those claims or potential claims.

You may even lose the right to continue with a potential lawsuit because the court-appointed trustee might be interested in taking over your lawsuit on your behalf. The lawsuit becomes an asset in your bankruptcy case and may have significant value. This is a complicated topic, but failing to list potential or pending lawsuits is a common mistake made by bankruptcy filers.

· Don't gamble

Even gambling with your own money can have negative implications in bankruptcy. The general rule of thumb is that any gambling losses in the twelve (12) months prior to filing must be disclosed in the bankruptcy paperwork.

· Don't run up credit card balances prior to filing

Many potential filers say that they are going to use up all their available credit before filing for bankruptcy. This usually does not work for the filer. The creditor will review your credit card charges after receiving the bankruptcy notification. If the creditor believes you ran up your credit card balances before filing, it has the right to challenge your request to eliminate some or all of your balance. You could end up owing money on a few of your credit cards after your bankruptcy is over.

· Don't wait until the last minute to file for Bankruptcy if circumstances warrant it

Don't wait until your wages are garnished, your bank account is levied, or your home foreclosure sale is the next day. You want to have the luxury to prepare a legal and thorough bankruptcy petition. Rushing your filing may not allow for a diligent and competent investigation of your bankruptcy qualifications.

· Don't become depressed or inactive about your situation – take action!

Taking the old sticking my head in the sand approach to your situation will never resolve it. It is normal and reasonable for you to get upset or feel depressed that you are in a difficult financial position. Unfortunately, avoiding your financial straits will not resolve them. Sometimes, bankruptcy is your best solution.

Again, bankruptcy can be a “correct” solution for anyone depending upon the circumstances. Your case can go smoothly as long as you disclose all information required to receive your fresh start.

(The presenter, Tony Arnest, is a licensed attorney in California. He is a debt relief agency and helps people file for bankruptcy. This information is being provided solely for educational purposes, and is not intended to offer legal advice or serve as a solicitation for business in anyway.)

Some good tips on what NOT to do when preparing to file for Bankruptcy

Tony Arnest