What Steps Do I Need To Take Before Filing For Bankruptcy?

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When we began working with a client, our role is to put together the financial documents and information that we need in order to provide the disclosures that are required in the bankruptcy petition. To summarize that information, you are basically looking for information regarding what’s coming in, what’s going out, what you have and who you owe. This includes tax returns, bank statements and proof of income. Most bankruptcy law firms will also ask a filer to complete a questionnaire.

Should Someone Take Drastic Steps In Regard To Finances Before Filing For Bankruptcy?

Whether or not to sell belongings before filing a bankruptcy is a fact-specific question. In some instances, it’s perfectly okay to sell items. In other instances, it can create complications for a bankruptcy. When items are being sold, those transactions could be evaluated as “fraudulent transfers.” A fraudulent transfer is a technical term, and it doesn’t necessarily mean that the person involved in the transaction intended to do anything fraudulent or underhanded. But in some situations, it can be legally complicated. For example, if you are selling a vehicle for $100 to a family member, maybe that money was supposed to be used differently. Asset sales leading up to a bankruptcy are something that should be evaluated cautiously.

Can Someone Move Their Finances Around Before Filing For Bankruptcy?

The individual transactions will always be evaluated on a case-by-case basis. With that said, outright gifts immediately before a bankruptcy are usually problematic. A big component of bankruptcy (especially in chapter seven cases, but also in chapter 13 cases) is the amount of stuff that you own at the time that you file. If the court feels like you are getting rid of stuff just so you’ll have less obligations within the bankruptcy, then that could create problems for those transactions. It could actually create problems for the bankruptcy as a whole.

Can I Load Up On Debt Prior To Filing For Bankruptcy?

Acquiring additional debt right before bankruptcy is typically not advisable. As bankruptcy attorneys, our obligation is to discourage incurring additional debt right before a bankruptcy. If debt is acquired very shortly before the filing, that debt may be considered non-dischargeable, meaning that you may not be able to wipe it out as part of the bankruptcy. In extreme circumstances, it could create problems for the bankruptcy as a whole and lead the court to say that none of your debts are dischargeable.

Can I Pay Back Any Family Or Friends Prior To Filing For Bankruptcy?

In bankruptcy, there is a concept called “preferential transfers.” What that concept means is that if there is one creditor (who could be a family member or an entity that you don’t have a personal relationship with) that receives a disproportionate benefit on their debts shortly before the bankruptcy, then the money or benefit that is paid to them could be what we call “clawed back.” That means that the bankruptcy judge or trustee might require the recipient to repay what was paid to them. As you can imagine, that could create an uncomfortable situation for a bankruptcy filer if they finally get to court and are being told that their family members are going to be sued for the money that they paid them. So, it does require caution to repay obligations to family or friends shortly before a bankruptcy.

When Should Someone Complete Their Pre-Bankruptcy Credit Counseling Course?

The pre-bankruptcy credit counseling course has to be completed within 180 days prior to the date of filing. Some folks that start preparing for the bankruptcy process very early on may still fail to file within those 180 days. In that case, they may have to retake the course. Individuals who might need to file bankruptcy very urgently due to garnishment or foreclosure have to complete that course before the case can be filed. It is considered mandatory. Most of the credit counseling services are available at a variety of hours, and some are even open 24 hours a day, seven days a week. So, there are a lot of options to get the course done, but it does have to be completed before the case is filed.

After Filing, How Long Will It Take For The Creditors To Stop Calling?

The bankruptcy freeze on collect efforts is called the “automatic stay” and it takes place by operation of law. That means that it happens immediately after the case is electronically filed. Debt collectors are required to honor that automatic stay as soon as the case is filed. With that said, you might imagine that not every creditor is going to be aware that a bankruptcy is filed the very second that the case has been uploaded. So, there may be a logistical transition of a few days or maybe even a few weeks when some calls continue to come in. A bankruptcy filer certainly can inform the creditor that a bankruptcy case has been filed. If that is done, then the creditor should update their system and discontinue the calls. If creditors continue to call after they’ve been notified that a bankruptcy has been filed, then that is a violation of the law and would certainly be something that my firm would be interested in addressing.

Additional Information On What To Do Prior To Filing For Bankruptcy

I want to emphasize that the process of gathering the necessary information and ultimately putting the disclosures into the bankruptcy petition is critical. It’s not something that most people are able to complete overnight, or even in a week. For most people, it takes a few weeks to get that information together. It normally takes the bankruptcy attorneys a little bit of time to accurately include those disclosures and complete the bankruptcy paperwork. That information, as well as the time and effort that goes into properly preparing the bankruptcy petition is one of the most important aspects of the bankruptcy process.

For more information on Steps Taken Prior To Bankruptcy Filing, a free initial consultation is your next best step. Get the information and legal answers you are seeking by calling (727) 538-4188 today.