When you are in a dire financial situation where you can’t pay your bills, the only way out might be to declare bankruptcy. The legal process helps you to manage your finances and pay your creditors. Individuals and big corporations that have gone the bankruptcy way have recovered their financial footing, which means it could be right for you.
However, you will find that the process is more streamlined when there is proper planning. You must make multiple considerations and consult with an experienced La Habra bankruptcy attorney if you want to avoid mistakes and obtain maximum benefits from the process. The Los Angeles Bankruptcy Attorney team has explained the do’s and don’ts in bankruptcy to streamline the process and regain your financial footing.
Reasons for Declaring Bankruptcy
People choose to file bankruptcy to solve their financial struggles and prevent garnishment, foreclosure, vehicle repossession, debt discharge or to retain their property. Explained below are some of the reasons for bankruptcy filing:
Delay or Avoid Foreclosure
When you declare bankruptcy, you gain protection from automatic stay statutes that prohibit debt buyers and creditors from any collection activity. So, if you were an inch away from a foreclosure, the legal procedure can help prevent or delay it.
Remember, in Chapter 7, there are no mechanisms to help you retain your home because the trustee sells off the property. It’s only Chapter 13 that lets you keep the house and catch up with debt payment.
However, the benefit of liquidation is that if you file for it before the end of a foreclosure, the status will clear your entire debt. Even if the proceeds of the auction or sale of the bankruptcy property aren’t enough to clear the debt, you will not owe the creditor the remaining amount or deficiency because they should discharge or forgive it. Unfortunately, the deficit or discharged debt is considered income, which means you will pay income tax for the debt the creditor has forgiven.
Prevents Automobile Repossession
Automatic stay status will automatically prevent debt collectors or creditors from repossessing your vehicle. Chapter 13 could help you retain the car as you continue with payments or recover it if it had already been repossessed.
It Will Help You Pass The Mean Test
The mean test is designed to disqualify families or households whose income is above that of a medium-income home from wiping out their debt. You must perform well in this test to qualify for Chapter 7. You pass this test by filing for bankruptcy, but unfortunately, some trustees and courts might not consider your qualifications. If you have a constant and high income, the trustee will recommend Chapter 13.
Other reasons you should consider bankruptcy as a solution to your financial problems include:
- It prevents lawsuits from creditors.
- It saves your savings after a job loss.
- It can protect you from eviction
- It can help you retain the property you are about to receive
If you have seen the above reasons for filing bankruptcy, the next thing is to plan for the process to avoid limiting your options. The best planning involves knowing the things you should do or avoid before the procedure.
Dos Before Bankruptcy
Some of the things you should know when filing for bankruptcy are highlighted below.
Seek Competent Legal Advice
Bankruptcy law is complex enough for you to understand the legal requirement and navigate through the process. It’s critical to seek legal counsel from an experienced attorney. Speak to a La Habra bankruptcy attorney so that they can explain how the legal process will apply in your case.
An experienced attorney understands the consequences of the process and how to avoid them and obtain maximum benefits. However, not all attorneys out there are equal so look for someone you are comfortable with and one devoted to the case.
Be Entirely Honest With the Attorney
The rule of the thumb when speaking to your La Habra bankruptcy attorney is to be completely honest. Nothing about your finances should be too embarrassing to say to your attorney. So, you should be transparent and fair when explaining your financial situation or answering questions from your attorney regarding the same. You should paint a detailed picture of your finances, including recent purchases because they might affect the intended status outcome.
Similarly, you should disclose all your properties and assets because refusal to reveal some might cause you to be denied any attempts to discharge debt deficiency.
Provide Your Attorney With All The Relevant Documents
Your La Habra bankruptcy attorney will provide you with a list of documents they will need for the petition. Your attorney will need your pay stubs, so you need to start gathering them on time. The stubs help your attorney to know your monthly income six months before the petition. Even if you are paid in direct deposit, look for copies of the payments to prove your income.
Your attorney will also need your tax returns for the last four years. Even if you can’t afford to pay the taxes at the moment, file any unfiled returns and ready the documents for filing the petition. If you owe back taxes, reach out to the IRS and the California Tax Franchise Board for a tax account transcript for every year you owe. The transcripts are useful to your attorney in determining how the petition will treat your tax debt.
If you run a business but never use accounting software, you must prepare a profit and loss statement to show your income and expenses.
Also, you need to document your debts. List them all, including the smallest ones you owe friends and relatives, to the credit card ones. You must track all your withdrawals and deposits, too, because your trustee will review your bank statements and might raise the alarm if large amounts are involved.
Further, it’s critical to remember what withdrawals were for. Suppose you made a large withdrawal to pay the debt. In that case, you need to keep the receipts of payment because they will be necessary.
You should also disclose all property or assets that you own. Among the assets to be revealed include small households like furniture or the few cents in your bank account. Note that even the kids you have added to your bank account for more effortless transfer make them yours, so you are encouraged to disclose all your assets.
Carefully Read The Bankruptcy Petition
Once all the documents relevant to the process are ready, the next thing to do is file a petition. However, before doing so, you should carefully go through the forms before appending your signature. Your La Habra bankruptcy attorney will help you review the drafted copy before signing.
Remember, by signing the petition, you declare that the forms’ information is correct. If you make an incorrect entry and submit the documents that way, you could face criminal charges or be denied debt discharge. For this reason, all the details you will complete in the bankruptcy forms should be accurate.
If you are considering bankruptcy, you must know the steps to avoid it. This is why it’s critical to hire a La Habra bankruptcy attorney to help you from the start. An attorney will explain what you should avoid or not do during bankruptcy. Discussed below are the steps you should avoid.
Don’t Rush Into The Process
Many people worry the moment they can’t manage debt. However, there is no need for panic because millions of people nationwide are in a financial situation like yours. Not worrying allows you to understand the process and its consequences to make an informed decision.
Similarly, bankruptcy is right for organizing and repaying debt, but for a debt discharge that forgives or wipes out your debt’s deficiency, it doesn’t occur so often. It’s the reason you should evaluate your current situation and see if it’s the best time to file a petition. A Chapter 7 debt discharge occurs once every eight years or six years after declaring bankruptcy under Chapter 13.
Even if you are faced with unfair economic times during the waiting period, declaring bankruptcy might not be the best thing because your debt might not be discharged. Some of the financial issues you might face include eviction, job loss, or illness. If a situation like this hits you and you are unable to pay the debt, you might not be eligible for bankruptcy, which is why you should take your time and understand your options first.
Don’t Wait Too Long Either
Although it’s good to take your time before starting this legal process, don’t take too long. Creditors might feel you cannot pay your debt and move to court to force you to pay your debt. If the lawsuit is successful, you might face a foreclosure, car repossession, or wage garnishment. Move quickly and file for bankruptcy when you obtain a notice of a lawsuit from your creditor.
However, before moving for the petition, have your attorney review the lawsuit and determine whether it contains any fraudulent allegations. If the suit is valid, file the petition immediately before the court judges the creditor resulting in garnishment or foreclosure. By declaring bankruptcy early enough, you stop the lawsuit, and creditors are prevented from collecting the debt.
Although the automatic stay status will deter all debt collection activities, it offers limited protection against liens. Not waiting for too long to declare bankruptcy means creditors won’t get a ruling in their favor, attaching liens to your property.
Don’t Drain or Withdraw From Your Retirement Account
Federal statutes protect retirement accounts from creditors. This is mainly the case when using Chapter 7, where your assets are sold off to repay the creditors. Your retirement account is an exempt asset unless you withdraw the money and place them in a savings account.
Therefore, people make a common mistake to withdraw cash from the protected retirement account to pay off the debt, whereas bankruptcy could clear the debt. If you consider repaying the debt by withdrawing money from the retirement account, talk to your attorney to explore other choices.
Under Chapter 13, your non-exempt assets are used to calculate the money you pay to creditors. By allowing your money from the retirement account to repay the debt, you are increasing your non-exempt assets, increasing the money you pay to creditors.
Avoid Racking Up New Debt Before You Speak To Your Attorney
Racking or running up debt sixty or seventy days before bankruptcy is not advisable because the creditors will block your debt discharge claiming that you committed fraud by taking debt or loan that you never intended to pay. Therefore, don’t make the mistake of borrowing more money or using your credit card within 90 days before filing a petition because doing so will be deemed presumptive fraud.
Avoid Moving or Giving Away Your Assets or Money
Any transaction involving transferring ownership or giving away your property two years before filing a petition is a mistake because a trustee can undo bankruptcy. Remember, your trustee will examine you to see if you have moved any valuable assets to a friend or relative for less than the property’s reasonably equivalent value. Don’t make the mistake of hiding or transferring your assets for safekeeping because the move could result in a debt discharge denial. Further, you could face criminal prosecution.
However, suppose you offloaded some of your assets to cater for other expenses like rent. In that case, you don’t have to worry about the transaction being reversed if you can explain the transfer and avail supporting documents.
Avoid Paying Back Friends, Relatives, or Preferred Creditors
There is the preferential payment to an insider in bankruptcy, where a debtor favors some creditors like relatives, friends, or preferred creditors twelve months before bankruptcy. The law makes all creditors alike. Suppose your trustee discovers there were some anomalies in debt repayment. In that case, they can reach out to the creditors you favored and recover the payment, then redistribute it equally among all your creditors.
Under Chapter 13, even if the insiders won’t be contacted to recover the money, they will increase the amount you should pay creditors.
Call a Bankruptcy Attorney Near Me
Bankruptcy is a complex and technical legal process, although it might appear easy on paper. Once you decide to undergo the process, consult with an experienced attorney who knows how to prepare the necessary technical legal paperwork to navigate the procedure.
The Los Angeles Bankruptcy Attorney will help you develop a plan to manage your debt and avoid the stress that comes with financial problems. For further discussion of your case, call 424-285-5525 to arrange a meeting.