What You Must Do and Must Not Do If You Are Thinking of Bankruptcy

Do Not:

  • Don’t move assets and don’t hide assets. You will likely get to keep most or all of your asset in any event.
  • Don’t provide inaccurate information.
  • Don’t selectively pay creditors, and don’t repay family or friends. In most cases, you should stop paying most unsecured creditors immediately when you decide to file.
  • Don’t use your retirement accounts to pay debts. In the overwhelming majority of cases, you can keep your retirement accounts in bankruptcy, so using retirement money to pay creditors is pure waste in most cases.
  • Do not give away cash or assets, especially to friends and family.
  • Do not incur debt once you have decided to file for bankruptcy, until after you actually file.
    • Specifically, do not incur more than $675 in debt for luxury goods or services from any single creditor within 90 days before you file for bankruptcy. This 90 day window is one of the many issues that we consider when timing your bankruptcy.
    • Specifically, do not incur debt for cash advances on an open line of credit aggregating more than $950 within 70 days before you file for bankruptcy. This 70 day window is one of the many issues that we consider when timing your bankruptcy.
  • Do not file if you anticipate an inheritance soon.
  • Do not let your property get repossessed. Once that happens, bankruptcy cannot help. Seek help before repossession.
  • Do not hide anything from your attorney.
  • Do not possess more than an absolute minimum amount of cash and cash equivalents:
    • Cash from recent salary, from bank accounts, and from all other sources should be used, to the extent possible, to pay for food and groceries, medical expenses necessary for the health and welfare of you and your family,  the Chapter 7 or Chapter 13 filing fee, the bankruptcy attorney’s fee, and on any other items necessary for the health and welfare of you and your family.
    • The cash in your bank accounts should be less than $50. If you have written checks against your bank accounts and you need money in your account to pay those checks, then you should either: (i) wait until the checks clear before filing for bankruptcy; (ii) stop payment on the checks and pay in cash; or (iii) if the check was written to an unsecured creditor, consider simply closing the account and allowing the check to bounce, since you will likely discharge all unsecured debt in bankruptcy anyway.
    • If you have prepaid rent, such as last months’ rent, try to make arrangements with your landlord to have all prepaid amounts and amounts on deposit with the landlord to be equal to exactly the rent that you owe on the date that you file. If this is not possible, file as close to the end of the rental period as possible.
    • If you have worked and earned money, but have not been paid, such as when you are paid a week after your pay period ends, the you have “accrued earnings”. All unpaid but accrued earnings, vacation, commissions, sick/personal leave, and other accrued but unpaid benefits, are cash equivalents. For accrued vacation pay, sick/personal leave, commissions, ask your employer if you can “cash out” and use the proceeds to pay for food and groceries, medical expenses necessary for the health and welfare of you and your family,  the Chapter 7 or Chapter 13 filing fee, the bankruptcy attorney’s fee, and on any other items necessary for the health and welfare of you and your family. Try to do the same for accrued earnings, but if this is not possible, then file the morning after payday.
    • If you expect a tax refund, consider waiting to file until you receive the tax refund and use it for food and groceries, medical expenses necessary for the health and welfare of you and your family,  the Chapter 7 or Chapter 13 filing fee, the bankruptcy attorney’s fee, and on any other items necessary for the health and welfare of you and your family. The ideal situation, if a tax refund is expected for the current tax year, is to file as early as possible in the tax year, but after you have received and disposed of the tax return from the previous year. NOTE that in many cases it is not possible to wait: your house may be close to repossession, you might have to file soon to meet the means test, your wages may have been garnished, the IRS may be demanding payment, and you may need to file soon for a host of other reasons. Also, some people just want to get their financial problems behind them. Finally, it is often possible to exempt tax refunds.

There are many other issues to consider when deciding what not to do when filing for bankruptcy. Please contact our office for more information.

Do:

  • Notify your attorney immediately, and in any event within 14 days of learning, that you will receive property or funds by bequest (gift), devise or inheritance, from a life insurance policy or death benefit plan, or from a divorce or property settlement agreement with your spouse.

There are many other issues to consider when deciding what to do when filing for bankruptcy. Please contact our office for more information.