Top Five Tips Before Filing for Bankruptcy

January 14, 2011
By Scott D. Schwartz from Rust, Armenis & Schwartz on January 14, 2011 1:09 PM

Our firm works with hundreds of clients every year in Northern California to guide them through the tricky process of bankruptcy filing. We have seen many examples of mistakes made before a Chapter 7 or Chapter 13 bankruptcy filing that can easily be avoided by following these top five "what to avoid" cautions:

Before Bankruptcy Filing:

1) Open (and save!) all of your mail. Although it's hard to face the deluge of correspondence that you're probably receiving it is important to be aware of any possible dates of lawsuits, foreclosures, trustee sales, garnishment of wages, repossessions of cars, etc. Knowledge is power and to the extent that you know what your creditors are doing, you will be in a position to avert disaster, such as the untimely loss of your property or wages. This is also a great way to make sure that all creditors and collection agencies are included in your case.

2) Stop paying friends and family. Often times when people are facing financial hardships they turn to their family (called "insiders") to borrow money to keep them afloat. These are usually the last payments that people stop making before they take more drastic measures to resolve their debt, because of the personal ties a debtor has to the insider. These payments, however are viewed by the court as "preferential payments" since you're paying insiders before your unsecured creditors. Any payments for the year leading up to your case being filed must be disclosed, and the Trustee will go after the recipient to recover those payments. It's important also, to avoid transferring or gifting any of your property to insiders before filing for bankruptcy. Any such gifts may be considered a fraudulent act of hiding assets and can result in the dismissal of your case or even prosecution for fraud.

3) Explore your options now. If you are going through a tough time with mounting debt and considering bankruptcy you should act sooner rather than later. If you've collected unemployment for a year, and then begin a job, your employment income may disqualify you for Chapter 7 bankruptcy, despite the fact that you don't have the means to satisfy your creditors. An experienced attorney can help explain the rules of bankruptcy and help arm you with the knowledge to make the best decision in your situation.

4) Weigh your pros and cons. Try to objectively decide what your goals are in either discharging or reorganizing your debt before making emotional decisions that may harm you in the long run. For example, many of our clients in Northern California are faced with homes that are upside down in value and draining their resources. They're torn by an emotional attachment to their home, but also facing a financial hole they'll probably never be able to dig their way out of. The fresh start offered by bankruptcy can give you protection when surrendering your house or expensive car and, in the long run, be a freeing experience for you and your family.

5) Pace yourself. Don't rush to pay off secured debts such as car loans or mortgages, as those obligations may in fact strengthen your qualification for bankruptcy. Don't deplete your retirement accounts if it is not going to solve your financial problems. You can file for bankruptcy and keep your retirement so in most cases you are better off keeping the retirement and not paying taxes and penalties for withdrawing the funds.

If you live in Northern California and are considering bankruptcy as a solution to your financial struggles, please call Rust, Armenis & Schwartz for a free consultation with one of our attorneys. We can help you navigate this process, and explore all of the options so that you can quickly get yourself back on the path of financial recovery. To set up your free case evaluation, e-mail us at mail@rustarmenis.com or call us at 1-866-RAS-ATTY (1-866-727-2889).