Problem-free bankruptcy requires planning. You can save yourself some serious headaches by checking these 10 items off your to-do list before you file.
#1 Move Money to Avoid Setoffs
If you owe money to a bank at which you also have deposit accounts (e.g. checking, savings, money market accounts), the bank can use the balance that was in your checking account on the date you filed for bankruptcy to pay down the loan or credit card balance you owed on the date of filing. This is called a set-off. Consider moving your funds to another bank before you file.
#2. Keep Ready Cash Available in Case of Frozen Bank Accounts
Some banks– even if you do not owe them money– will freeze your accounts if you file bankruptcy. If your accounts are exempt from creditors, you will eventually regain the use of the frozen funds. However, this process can take time, sometimes at least 60 days. Have a contingency plan in place (keeping cash, or money on prepaid debit cards) for how you are going to pay expenses in the meantime.
#3. Pay Ordinary Bills and Spend Money Down before Filing
It is wise to pay all your ordinary and necessary bills right before filing bankruptcy. Don’t pay ahead (this creates preference payment issues), but spend down money in your accounts by getting groceries, filling your gas tank, paying your monthly utilities, buying a bus pass, etc. right before you file. When you file bankruptcy, you must list your exact bank account balances as of your bankruptcy filing date. If you want to keep the money in these accounts, you must apply your exemptions to protect these funds. So, you will want to choose a filing date that legitimately minimizes your bank account balances.
#4. Plan for Utility Company Setoffs
Public utility companies, such as the electric company, the gas company, the telephone company, and in some cases the cable company cannot cut off service simply because you have filed for bankruptcy and owe them money. However, 20 days after the filing of a bankruptcy petition the utility company can terminate service if you do not pay a security deposit or provide other security that the utility bill will continue to be paid. If you paid a deposit with the utility when you first ordered service, the utility can recover pre-filing utility debt by set-off against your deposit without giving you notice.
#5. Stop Automatic and Direct Debit Payments
Because of the automatic stay that issues when a bankruptcy petition is filed, most creditors will routinely stop any direct debit of your bank account and refuse automatic payments.
To avoid this problem, it is wise to stop all automatic payments and debits several months before filing your bankruptcy case. Instead, you can mail your payment or make it in person, if that is an option. You may want to consider sending your payment via registered mail. That way you will have a receipt of timely payment, regardless of when the check is cashed.
#6. Stop Using Credit Cards
Ideally, you want to stop using all forms of unsecured credit several months before filing bankruptcy (more than three months is ideal). Creditors can object to discharging credit card debt that a debtor runs up right before filing and never intends to repay. There is a “luxury goods or services” presumption in bankruptcy. If you charge more than $650 with a single creditor within the 90 days before filing to purchase luxury goods or services (anything that is not reasonably necessary) this part of the debt could become non-dischargeable.
If you take one or more cash advances totaling more than $925 from a single creditor in the 70 days before filing bankruptcy, the debt is presumed to be non-dischargeable if the creditor challenges it. The best way to avoid a creditor taking advantage of these presumptions is not to use any credit or take any cash advances when you start thinking about filing bankruptcy.
#7. Stop Paying Unsecured Creditors before Filing
If you are paying any of your unsecured debts, which would include your payday loans, credit cards, medical bills, or bank line of credit, $200 per month or more during the three months before you filed bankruptcy, you may have a problem. Any payments on these kinds of debts that exceed $600 within a three-month period are considered preferential payments and a bankruptcy trustee can and usually will sue to get this money returned to be shared with all creditors, which can delay completion of your case and increase the cost. It usually takes creditor months to sue for unpaid debt, so you have a little time once you stop paying, but you might receive unpleasant phone calls or correspondence until you file.
#8. Order and Review Credit Reports
Credit reports include a significant amount of information, including addresses for your creditors, amounts owed, payment history and whether an account is current or delinquent. You will need this information to complete your bankruptcy papers. Federal law allows consumers to pull their credit reports from each of the three bureaus (Experian, Transunion, and Equifax) once a year for free at annualcreditreport.com. Additionally, there are multiple sources to pull your credit report online for various fees. Pulling your own credit report does not count as a hard inquiry into your credit.
#9. Keep Track of Monthly Income and Expenses
A bankruptcy filing requires you to document all your monthly expenses such as housing, food, clothing, medical, transportation, child care, etc. You will need to list actual expenses for these categories (and some additional ones). This is important because your actual monthly income and expenses will be used to determine which type of bankruptcy you qualify for, Chapter 7 or Chapter 13, and if you file a Chapter 13 plan how much your monthly payments will be under the repayment plan.
#10. Complete Credit Counseling
Before filing a bankruptcy case, every debtor must complete a credit counseling course through a U.S. Trustee-approved provider. For married couples filing jointly, each spouse needs to complete the requirement. Most of the courses are web-based and are easy to navigate through in a few hours or less. The agency will then send you (and your attorney if you request it) a copy of the certificate. It is good for 180 days. The certificate must be time-stamped before your case filing date, or the court will reject the filing.
Keep in mind that all transactions you decide to undertake before bankruptcy should be done in good faith. There is a big difference between moving money from one bank to another with full disclosure in your bankruptcy filing and secretly transferring a car into a friend’s name for no value.
Our skilled bankruptcy attorneys can guide you in the steps leading up to filing for bankruptcy. Call us today.