Filing bankruptcy is a serious decision. It can have a lasting impact on you and your family for years to come. If executed correctly, it can be a positive impact. If executed incorrectly, it can have a lasting negative impact for years to come. In my office we are constantly swapping horror stories that we see in court or with new consultations who are tying to have up fix what someone else broke. Here are the top 10 mistakes that I see clients make before they file bankruptcy.
1. They hire an attorney who does not have BANKRUPTCY experience.
Yes, they may be as old as the hills and have practiced law for 30 years BUT that does not mean they have practiced bankruptcy law. Bankruptcy law is constantly changing. Attorneys specialize in their areas because the law is a very complex and complicated beast. Don’t be a guinea pig for a lawyer to try his or her hand at bankruptcy!
2. The go to a “Bankruptcy Mill” to handle their case.
Now, I have many colleagues that are excellent attorney who work for a “bankruptcy mill”. That said, when you are filing hundreds of cases per month and have maybe 4-10 attorneys, there is no way you can humanly service your clients PERSONALLY. This means that clients get passed off to paralegals and legal assistants for a majority of the case work. I cannot tell you how many new clients we refile who had their case dismissed that complain that the big firm treated them like a number. If you go into a waiting room and it looks like the DMV waiting room then that is a sign that you are probably not going to personalize legal service. If you don’t care about talking to your attorney and don’t think you need that much attention then you may be fine with a bankruptcy mill but I think most people need to be able to talk directly with one person on their case. The kicker of all this is that these places don’t charge any less than if you go to a smaller more personal firm! So in many cases you are the same about of money for less time with your attorney.
3. Using a paralegal service.
A good friend told me once that you never go discount shopping for plastic surgeons and lawyers because the damage that a hack can cause it too great. Using a paralegal service is an accident waiting to happen. Many times people will go through their case, think everything is fine, and then years later the realize that a lien was not removed or that a debt was not reaffirmed correctly. Legally, these folks are not supposed to give legal advice. They are only supposed to type. So when bad things happen you have no recourse at all. I cannot tell you how many people I have met with that used a paralegal service who were in the wrong Chapter of bankruptcy, were facing the trustee trying to sell their home, or were being investigated for fraud by the United States Trustee’s Office. You can usually start a Chapter 13 case for about $75.00 and the attorney fees are paid through the plan. You can also usually start a Chapter 7 for the same cost and do a month payment plan. There is NO reason not to hire an attorney. Being cheap is foolish when you are dealing with a serious issue such as federal bankruptcy.
4. Not listing all of your creditors in your bankruptcy case.
The theme throughout any bankruptcy case is FULL DISCLOSURE. It is not hide and seek or I think I won’t tell them about this debt. When you file bankruptcy you have to list ALL OF YOUR DEBTS. You don’t get to pick and chose. Not listing creditors is the fastest way to get yourself in trouble with the court. List all of your creditors. Your attorney can review and let you know who has to be paid back what but if you don’t tell them then there is no way for them to know. When something bad happens because you purposely left off creditors, you will really wish you had just done the right thing in the first place.
5. Not listing all of your assets in your bankruptcy case.
Continuing on that whole theme of FULL DISCLOSURE…You have to list all assets that your name is attached to. The trustee does not care if you don’t really consider your mom’s house your house since she lives in but your name is still on it. If your name is on the title, you need to list it. Bankruptcy fraud is a criminal charge (have you seen how many reality stars it has nabbed lately?) and you don’t want to even start down that path.
6. Waiting too long or not long enough to file bankruptcy.
I just had a client come in to meet with us last week that had been being garnished for almost a year. As I was preparing her case she asked me when she would be getting her money back from the creditor. I had to bring her into reality and let her know that she would not get ANY of that money back because she waiting too long to file. While we could stop any further damage, the money they garnished was LONG gone. A sad scenario that I have seen play out is when someone contacts my office the say AFTER foreclosure to file their case to save their home. In Georgia, there is no right to redemption so when your house is sold it is sold.
The opposite timing issue is when you see cases that were filed too soon. If the client had just waited a few days or weeks they could cram down their car value or get rid of taxes. I met with some clients not too long ago that were being hounded by the IRS on old tax debt. Their attorney didn’t know the rules that apply to the discharge of taxes and literally missed the deadline by 2 days. Needless to say they were NOT happy.
7. Paying back friends and family members before filing.
This one gets clients every time. I mean, who wants to stiff their mom on a debt? Surely the courts understand that you have to pay back mom. Nope. They don’t care and in fact they are going to go after mom to get that money back so that your other creditors can be repaid in a fair and equitable manner. Preference payments are a no no before filing. If you are having such financial issues that you are looking at bankruptcy you don’t need to be repaying anyone before you file. Make sure you let the attorney you are meeting with know about these payments since there is a timeline for when the trustee can go after these payments.
8. Transferring assets before you file.
Quitclaiming property or switching cars out of your name is not going to help you when you file for bankruptcy. You really don’t honestly think the trustees or creditors don’t know WHY you “sold” your car to your brother for $10? In some instances it may not be a big deal HOWEVER you need to consult with an attorney before you start moving assets around. Transferring assets right before you file bankruptcy looks shady. Period. Don’t do it.
9. Running up debt right before you file for bankruptcy.
Along the same lines of #8, you have to give creditors and the trustee a little credit. They aren’t stupid and when you spend $5,000 on a credit card and then turn around the next month and file bankruptcy you aren’t going to get away with that. You will have to pay it back. I did have a client once who literally charged $8000 on cruise tickets the day before she filed bankruptcy. Although she conveniently left that out when she met with my office, the creditor caught it immediately and she had to repay every dime. If you know you may be filing bankruptcy, stop using your credit cards. In some cases, if you have to file Chapter 13, if you have incurred debt right before filing then you may have to repay all of your unsecured debts in full (instead of not paying them back at all) because you incurred debt before filing.
10. Filing a case when you have a tax refund pending
Tax refunds are assets of the estate and many trustee will go after them. Just because you have not received the money does not mean the trustee won’t go after the money. Every district if different in terms of what they go after so you need to review with an attorney in your area to make sure your assets are protected.