You’ve had your consultation with an experienced bankruptcy attorney. You’ve listened to what he/she has said, and you have decided to take the plunge. Get ready. You’re about to jump into the bankruptcy water and file a bankruptcy case. The question is what do you next?
First and foremost, if you are trying to pay your creditors, STOP now. I know it’s hard, and for many people it is pretty scary. A lot of our clients are people who have been trying to do the right thing and have been making on-time payments to their credit cards. Once you have decided to retain an attorney and file bankruptcy, you no longer have to make payments to your unsecured creditors. Unsecured credit includes credit cards, medical bills, past due utilities, or any other debt that is not tied to some form of collateral. There are two reasons that you do not want to pay any of these creditors. The first is a practical one. Once your bankruptcy is filed, your unsecured accounts are going to be closed. Why would you want to take money that you need for other things and put it towards an account that is just going to be closed in a few months?
You wouldn’t. The second reason is dictated by the United States Bankruptcy Code. The code states that your bankruptcy trustee can avoid any payment made to the benefit of a creditor by a debtor within 90 days of the filing of the bankruptcy case. The amount paid to any one creditor must exceed $600.00 in order for the trustee to be able to do this. This means that if you try really hard to be “good” and pay American Express $700.00 in the two months before you file bankruptcy, your bankruptcy trustee may take action against American Express to recover those funds. Now, the money wouldn’t come out of your pocket, but it isn’t really helping you to make the payment either if the trustee is just going to take it away from the creditor. There is an exception to this avoidance power for secured debts. The trustee cannot undo payments made to secured creditors, i.e. a mortgage company or vehicle lender. Which means, if you want to keep your house and/or car, you must continue to make those payments. If you do not want to keep them, you do not have to pay those creditors either.
A second thing you can work on prior to filing bankruptcy, is maintaining small bank account balances. In Arizona, a debtor is allowed $150.00 or less in any one bank account on the day that he/she files bankruptcy. The amount is doubled for a married couple. This means you should not maintain large reserves in your bank accounts if you plan on filing bankruptcy. It does not, however, mean that you have to rearrange your banking practices or cancel direct deposits. You just want to be aware of the bank balance limitation and move towards paying by cash, debit, or money order. These are payments that clear quickly from your account. That way, when your case is about to be filed, you are not waiting around for a payment or purchase to clear your account.
Third, you will need to take the court required credit counseling class. After 2005, the bankruptcy code mandates that every debtor will take an approved credit counseling class within 180 days prior to the filing of the case. Your attorney should provide you with a list of approved classes. Most classes can be taken on-line, so it is relatively convenient.
The fourth step is documents, documents, documents. I know you hired a bankruptcy attorney to help you, but this does not mean that we can pull your information out of thin air. We need documents to compile the information and prepare the correct paperwork to be filed with the court. This means you will generally need to gather for your attorney pay stubs, tax returns, divorce decrees, expense information, and asset information. Yes, it can be time consuming, but the more thorough the information, the better your attorney will be able to assist you.
Lastly, and also pretty important to remember, you should stay in constant communication with your attorney. Do not be afraid to ask your attorney questions. That is what we are here for. If you do not ask, you may do something that could potentially harm your case. Bankruptcy has significant look back periods for fraudulent transfers of assets, repayment to family members, etc… It is better to ask your attorney if it is ok to do something then to do it and trigger one of these issues. Also, you have hired an attorney to help you and take the worry off of your shoulders. So, why would you sit and stress over the unknown when you can just ask?
So, now that you are equipped with you lifevest, it is time to take the bankruptcy plunge.