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.
