Friday, 8 January 2021

Filing Chapter 7 Bankruptcy In Covid-19 _ 5 Things You Must Avoid

We're right in the middle of the whole COVID-19 pandemic and it's causing a lot of financial hardship for a lot of people. A lot of people are realizing that they may have to file bankruptcy in the near future. In this article, I'm going to share with you five tips of things that you need to avoid if you believe bankruptcy may be in your near future. 

Particularly if you think that you're going to end up needing to file for bankruptcy in the near future, there are some things you need to avoid. And I'm going to share with you five things you must avoid if you think that filing bankruptcy is going to happen, unfortunately, in the near future for you or for your family. These things can make or break your bankruptcy and your ability even to file for bankruptcy. So each and every one of whom is extremely important. 

1. Avoid Taking On A Second Job Or Working A Bunch Of Overtime

I know that sounds completely backward when you're dealing with financial hardship, but here's why I'm saying this. If you're looking to file a chapter 7 bankruptcy, which is what most people file when they go through the bankruptcy process, it's relatively short. It takes four to five months as compared to like chapter 13, which is a five-year process. Chapter 7 gets rid of all the credit card debt, medical bills, unsecured debts, for the most part, they go away. In order to file a chapter 7, you have to qualify for that based upon a means test. 

They look at your income and your household size, and they compare that to the average income of your household size in your state. And these numbers are kind of fluid. They change even quarterly sometimes. And so the reason why I say to avoid the second job or overtime is that if you get a bunch of income that you normally don't have, it may push you over those limits and you may not qualify for a chapter 7 bankruptcy. So at the time when you need it the most, you may find yourself having to file a chapter 13, or bankruptcy may not be an option. So you want to be careful with adding a bunch of income that you don't normally have through a second job or overtime, which I know is a tough thing because you're just trying to get by day-to-day and that's the smart thing to do is to go out and try to generate more income. But if the writing's on the wall that bankruptcy is in your near future, you may want to avoid that second job or doing a bunch of overtime. 

2. Paying Family Back

The second thing that you need to avoid is paying your family back. Assumes that if you owe money to a family member or a friend, and you're thinking, "Hey, I need to file bankruptcy here in the next month or so. It's natural to say, I want to protect those people so I'm going to go and I'm going to pay them back just so I don't have to deal with that in the bankruptcy." That can cause problems. So that's what's known in the bankruptcy world as a preference. If you pay back a family member or a friend money that you owe them, and you do it in the year prior to the filing of your bankruptcy case, the bankruptcy trustee who gets assigned to your case can actually go get that money back. And how they do that is they sue them. They sue the family member, they sue the friend, makes thanksgiving super awkward when you've kind of dragged them into your bankruptcy. 

So if it's a situation where you owe money to family or friends, you can pay them back or wait until your bankruptcy is over.  Don't do it in the year prior to filing your bankruptcy. That could cause some big problems. 

3. Transferring Assets

If you are going into a chapter 7 bankruptcy, you do not want to transfer any assets out of your name. You don't want to take your car and put it in your brother's name or sell your boat to your dad or something like that. Any transfers of assets within the two years prior to filing bankruptcy have to be disclosed. And if they're not legit transactions where you just sold it, you actually received money back. You received approximately what it's worth. If they're not legitimate transactions, again, the bankruptcy court through the bankruptcy trustee can undo those transactions. They go, and they sue the person that you sold it to bring the asset back into what's called your bankruptcy estate, where they can then sell it and give the money to your creditors. 

So if you are thinking bankruptcy is in the near future, status quo, just keep things as they are. Don't be taking your name off the titles. Don't transfer assets to family or friends, keep things as they are, because, in most situations, those can be protected through the different exemptions that are in your estate. That's something you need to talk to a bankruptcy attorney about, but don't do a whole lot of moving stuff around. Just keep it as it is. Go talk to an attorney and figure out if you can protect it or not, or put together a game plan. 

4. Credit Card Use Prior To Bankruptcy.

If you buy luxury items on a credit card within 90 days prior to the filing of your bankruptcy, those specific charges can be deemed non-dischargeable. Meaning they don't go away through this process. Further, if you take out cash advances within 70 days, more than $1000 of cash advances in 70 days, prior to the filing of your bankruptcy, the credit card company can come in and object to those specific charges going away.  

So the best advice is to not use the credit cards if you think that you're heading into bankruptcy, which again, I know is when these things where it's if you're in financial hardship, that may be kind of the safety net that you have there, but you got to be careful what it's used for. You don't want to buy luxury items, you don't want to go on trips or buy jewelry or buy real fancy electronics, things like that. And cash advances try to avoid those as well. They can cause issues in a chapter 7 bankruptcy down the road. And then the last, 

5. Do Not Pull A Bunch Of Money Out Of Any Retirement Accounts You Have

If you have a 401(k) or an IRA, I know there's a temptation to say, "I'm going to go and take that money and deal with my debt issues with that." A couple of reasons I don't recommend you do that, 

One, if you go into bankruptcy, the 401(k)s and the IRAs are almost always protected. They're exempt under federal and most state laws. And so you're not going to lose those assets. You can keep the retirement accounts as you go through the bankruptcy. 

Two, if you're taking money out of your retirement account, if you pull money out of a 401(k) to pay off debt, not only are you taking the penalty for doing it, but you're missing out on the compound effect that that retirement account has had for the years prior and in the years in the future, and you're putting your retirement to risk. So, those funds can be protected in bankruptcy. So you can go through bankruptcy, deal with the debt issue and then still have the retirement account so that you can be prepared for retirement when it comes. 


So I hope that helps, I know these are hard times and it's kind of a weird economy. Like here in Arizona, where I live, the housing market is booming, but everybody kind of sees this kind of dark cloud off in the distance where they're concerned that there's going to be a lot of personal bankruptcy filings due to the fact that a lot of the forbearances and some of these executive orders by governors stopping evictions, all of that is coming to an end in the near future.

The stimulus packages, the unemployment payments, those are down significantly. So hopefully that helps. If you think that bankruptcy is going to be in your future, and it's a very powerful tool, it can definitely help bring some structure to your debt issues, get rid of the debts that you're dealing with. But there are some things you got to be careful of prior to filing that can cause some big problems and sometimes can make it so you can't even file. So that's the purpose of this article is to give you kind of a heads up on things to be aware of as you're heading towards bankruptcy or dealing with your financial problem. 

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