Part 2 from a 2 part series of articles 10 Things Bankruptcy Court Won’t Tell You
6. Don’t settle with Mom first or fudge the condo in Boca. Many debtors naturally want to pay back friends and family before filing for bankruptcy. Yet that can be a big mistake. Any money repaid to “insiders”—including relatives, friends and acquaintances, or business partners—within a year of bankruptcy is recoverable by the trustee. If the recipient doesn’t voluntarily return it, the trustee has the power to sue. A more serious infraction involves trying to hide assets from the court. So don’t even think about giving your Harley to your brother— or selling it for cheap—to protect it from creditors. Bankruptcy filers must list everything they’ve sold, transferred or given away over the past two years. And nothing can be transferred, given away or sold for less than market value. There are many ways bankruptcy “fudgers” get caught. Spurned lovers or creditors often turn them in. I recall a case in which a lawyer read in the paper that a bankruptcy filer he’d represented a few years back was selling property. Turns out the filer had hidden the house from the court. He lost his bankruptcy discharge, letting creditors come after him again. Liars can also wind up in jail for perjury.
7. Better save up before you file. This spring, Mary Smith realized she was in over her head. The entrepreneur from Long Beach, Calif., had incurred more debt than expected launching her business and wanted to explore the possibility of bankruptcy. Yet once she started pricing lawyers’ services, Smith realized she couldn’t afford to file Chapter 7. Lawyers suggested she borrow the money from family and friends. “I was so hurt by that,” says Smith, who hasn’t even told some of her loved ones about her situation. She’s hoping to file with the help of a legal-services nonprofit. Lawyers in Chapter 7 cases generally request payment up front; otherwise, their fees would be discharged during the bankruptcy process along with other debt. (In Chapter 13, part of the lawyers’ fees become part of the payment plan.) Consumers seeking advice can visit the National Association of Consumer Bankruptcy Attorneys to find a knowledgeable attorney nearby. There are usually ‘pro bono’ forums at the bankruptcy court, and we offer periodical clinics as well for local people in need.
8. Just because your bills stop coming, after filing bankruptcy, doesn’t mean you shouldn’t pay them. Not only does filing for bankruptcy stop collection calls, but most bills stop coming too. That’s because the courts immediately file an injunction that prohibits collection actions against the debtor or his property. But that doesn’t mean debtors are suddenly released from payment obligations for secured possessions they want to keep—that’s legal lingo for anything bought with collateral, like a car or house. During Chapter 7 proceedings, which usually last about four to six months, you must remember to pay for what you want to keep in the absence of a bill. (In Chapter 13, those bills are folded into the payment plan the court establishes.) Besides the house and car, secured possessions could also include an engagement ring or other jewelry. Debtors must decide to “reaffirm”—that is, keep and stay current on—any secured debt before all other debts are eliminated in bankruptcy. To do that, in the absence of a bill, contact the party you send payment to. For example, those with Chase auto loans should call the company for logistical (not legal) guidance, says a Chase spokesperson.