Learn About Bankruptcy Law and What Not to Do Before Filing for Bankruptcy

If you are considering this option, understanding bankruptcy law is important. There are specific criteria that you must meet in order to qualify for a Chapter 7, and a judge will have to approve your plan for a Chapter 13.  This means that they will be looking at your financial situation now and in the near past. Businesses applying for bankruptcy are under even further scrutiny.  With that in mind, it is important to exercise caution with your financial decisions so that it doesn’t appear as if you are trying to trick the system.

Here is what you should know:

• Illegal transfers.  If you transfer property out of your name to a friend or family member, it may be an illegal transfer.  First, consider if the asset has any equity or real value.  If it does and you transfer it within one year of filing for bankruptcy, the court could consider it preferential and require the asset to be transferred back so that it can be properly distributed amongst your unsecured creditors. 
• Payments within 90 days.  During the 90 days prior to filing for bankruptcy, you are not allowed to make any preferential payments. This would be paying one creditor over another.  If, for example, you paid money towards a loan your parents gave you this could be considered preferential.  As a result, they may be required to give the money back.  This can pose a far greater difficulty for the person that you paid, especially if it is an individual.  By understanding bankruptcy law, you can avoid making any illegal preferential payments and the complications that can follow. 
• Fraudulent transfers.  If you transfer any assets with an attempt to defraud creditors, you may have consequences within your bankruptcy case and be exposed to the possibility of criminal charges.  

We can review your financial decisions and any transfers that you have made within the last 90 days to a year and let you know if they could put your bankruptcy at risk or if the court may seek to have the funds returned.  In some cases, people need to delay their bankruptcy filing until 90 days from a particular transfer.  We can discuss this with you in further detail during a consultation. 

It is also important to note that while you are waiting to file or in the process, you must still make certain debt payments. Some people make the mistake of thinking that if they are filing for bankruptcy they don’t have to pay any debts.  The truth lies somewhere in the middle.  If your debt is secured by something that you want to keep (house, car, etc.) then you must continue to make the payments because bankruptcy does not prevent them from exercising their right to foreclose.  That means that the bank could foreclose on your home, causing you to lose it even if you file for bankruptcy.  With this in mind, continue paying your secured debts and stop paying unsecured credit cards, medical bills, lines of credit, etc.  During your consultation, we can review each of your debts to provide specific payment advice in accordance with bankruptcy law.

When Looking for Bankruptcy Legal Services, Be Sure to Work with a Lawyer

At The Travis Law Firm, we offer bankruptcy legal services to individuals and families throughout California.  We understand that this is a major decision both financially and personally.  This makes it important to work with a trusted advisor.  In the state of California, and elsewhere, there have been issues with companies offering bankruptcy help that did not follow through or file the paperwork correctly. As an individual, it is difficult, if not impossible, to know if someone you hire will do what they say and that is why you should work with an attorney.  Attorneys have a fiduciary duty to their clients, meaning that we are held to a higher standard and responsible for giving sound advice and doing things in accordance with the law and our clients’ interest.

An example of these issues arose when California homeowners were trying to protect their homestead interest.  The state of California allows for anywhere from $75,000 to $175,000 of equity in a home to be protected as part of the bankruptcy process.  That means that when filing bankruptcy, if you owe $75,000 in unsecured debt and have $75,000 in equity in your home, you would not be required to sell your home to pay off the debt.  This is an important law that has helped families throughout the country to remain in their home while getting out from under their debts. 

Unfortunately, companies throughout California were offering bankruptcy legal services by saying that they would handle the paperwork and document filing for the homestead provision to apply then not doing it.  In order to have your home protected using this law, you have to file paperwork in the county where you live.  These companies were not lawyers but were still offering these services.  When many of them failed to do what they said, homeowners were not granted their homestead protections, and some lost their home as a result.  The state legislature responded by regulating these companies so that other families would not suffer the same fate. You can read the regulations by searching for CAL. BPC. CODE 17537.5.  

While this was a good step taken by the legislature, it simply serves to demonstrate the importance of working with a law firm when undergoing something as significant as a bankruptcy filing.  When you file bankruptcy, there is a set process that must be followed in order to ensure that it is done correctly.  There is a variety of forms and deadlines that must be met.

Additionally, if you are trying to protect your home or other assets like your car, steps must be taken to do so.  You can’t simply request it but need to go through the process, and this is where non-lawyers struggle.  The legal system is not designed to be simplistic or easily manageable.  While that would be nice, it’s simply not the case because every time a new piece of legislation is passed, the laws become that much greater.  As an attorney, it is our job, duty, and responsibility to understand the law, follow it and adhere to all procedural guidelines.  As such, if you are looking for bankruptcy legal services, call our law firm so that you can trust it will be handled correctly.