Over the past year, I’ve encountered a good number of clients who had bankruptcy cases that would have had no issues, until they decided to unilaterally take financial action without the advice and consent of a Massachusetts bankruptcy attorney. In taking their unilateral action they often badly damaged or substantially delayed their potential Chapter 7 or Chapter 13 bankruptcy filing. I want to describe some of these cases in this post with the hope that future clients will not make the same mistakes.
When an individual is experiencing debt problems they often transfer assets from their name to a relative. They mistakenly believe they are removing the asset from the reach of creditors. I’ve had clients who deeded their interests in real estate, or transferred their motor vehicle title to relatives without payment of fair market value being received for the transfers. These transfers must be disclosed on the bankruptcy petition and the trustee can seek return of the property to the bankruptcy estate. Never make these transfers prior to filing a bankruptcy case.
Similarly, many clients have struggled with their budget and have borrowed money from family members. The payments to family members whether for loans or gifts made in the last year must be disclosed in the bankruptcy filing. The Trustee can pursue reimbursement of these monies. Plan accordingly when timing your bankruptcy filing.
Sometimes potential clients have taken money from their 401(k) and other retirement assets to live on, and pay unsecured creditors who would have been discharged. They are postponing a filing. This disbursement usually does not create a problem in filing the case (although it might). Primarily, it is unfortunate that the retirement account money could have been protected and retained by the client if the bankruptcy had been filed prior to the distribution. The funds lost could have been saved.
Never run debt, including credit cards up immediately prior to filing. When you borrow money, even by buying with a credit card, and don’t intend to pay it back, that is fraud. That type of debt may not end up being discharged. Certainly, luxury items worth more than $500 purchased 90 days prior to filing and cash advances of $750 or more taken 70 days before filing are presumed not dischargeable.
Some clients have payed off secured debt believing that they are improving their monthly budget. Secured debt may have a positive impact on the Means Test being passed and the client being able to file a Chapter 7 case. Also, by paying off secured debt the client might increase equity in the asset beyond the amount which can be protected. Before paying of secured debt items consult a Massachusetts bankruptcy attorney.
Finally, don’t transfer balances from one credit card to another. This may result in a situation where some of the credit card debt is not discharged in bankruptcy
For people experiencing difficulties with debt and who might need to seek debt relief, it’s always wise the seek a bankruptcy consultation with an attorney before taking action with your financial affairs on your own.
A client visited my office yesterday to discuss filing a MA bankruptcy case. He had no savings and very little money in his checking account. The client had a 401k with over $25,000. He had numerous credit card bills with balances totaling over $40,000 with regular monthly payments over$1,000. He had a wife and child and income of less than $50,000. This client was a perfect example of someone who should file Chapter 7 bankruptcy. His concern was how he could pay me to file the case. I had a few suggestions.
The obvious answer is to stop paying the credit cards entirely and take any saved money to apply to paying the bankruptcy attorney. In my client’s case, we looked at his credit card situation and discussed each obligation separately. I was able to advise him he could stop paying all of them immediately without harming his Massachusetts bankruptcy case.
Another option often open to people is their income tax refunds, and now their stimulus checks. If these payments haven’t been received they can be targeted for use in paying for the bankruptcy filing.
Never take money from a credit card to pay for the bankruptcy. And no, you can’t charge the bankruptcy! If you have supportive family or friends they can be a source of funds.
I rarely advocate taking money from retirement accounts, but it may be appropriate to do so only to file a bankruptcy case, especially where the filing is needed to stop a foreclosure on a home. This source of funds should be a matter of last resort.
In any event, always look at the big picture – what little you are paying to obtain such a huge debt relief.