After years of representing clients in bankruptcy, I have assembled a short list of things to do and not do in the 90 (or so) days leading up to a bankruptcy filing. This list is not exhaustive, nor are these set in stone. Just some good ideas for avoiding problems, pitfalls and other traps for the unwary.
DO: Close deposit accounts at institutions where you have loans. Banks and (especially) credit unions aren’t allowed to engage in “self help” by freezing checking accounts or offsetting claims just because your car loan is with them. But that doesn’t stop them. Getting checking accounts unfrozen is an unnecessary distraction for your lawyer.
DO: Keep current on your student loans. They are not dischargeable except under the most dire circumstances.
DO: File any delinquent tax returns. You will have to provide your last filed return to the trustee, and if it’s not done, you may have to get it done before you can get a discharge. Just do it now.
DO: Get the credit counseling requirement out of the way. It MUST be done within 180 days of filing and there are no exceptions. Don’t fight this. It’s “Debtor Traffic School.” Get it out of the way but make sure it’s not outside of 180 days pre-filing limit or you’re going to have to do it again.
DO: Pay very close attention to getting the information required by the Bankruptcy Schedules CORRECT. Don’t screw around with this stuff. It’s really important, and if you’re found to have omitted information, or worse, outright lied, you will not get a discharge and you will have jeopardized your ability to get a discharge later.
DO: Keep your ordinary expenses current and paid. Things like your utilities, water, phone, garbage, kid’s school expenses, child support, tax payments, etc. Life continues after bankruptcy; don’t jeopardize your ability to get that coveted “fresh start” by starting out behind the 8 ball on things that you need every day. This is not to suggest that you pay a year’s worth of the cable bill, but if you have outstanding bills that will have to be paid anyhow, using that excess cash may be a good idea. Discuss with your attorney before you go hog wild on this however.
DO: If you have “excess cash” and are self employed, pay your estimated taxes. If you are not able to exempt excess cash in bankruptcy, the trustee may be able to take it, and will leave you without the means to pay the IRS. Discuss with your attorney before you do this however.
Do: If you own a business, consider incorporating. There are lots of reasons—some having to do with bankruptcy, some not—but ask your lawyer if this would be a good idea.
DON’T: Use your credit cards. Period. Just don’t. If you have unsecured debt that you’re hoping to discharge in bankruptcy, then it’s probably true that at least part of your obstacle is due to using credit cards. Get a debit card and learn to live on cash.
DON’T: Make any payments to family members to whom you may owe money. The trustee can—and will!—recover that money. It’s called either a preferential transfer or a fraudulent conveyance, and it will only cause trouble later on. Word.
DON’T: Transfer ANY property to a family member at all. This actually applies for a ONE YEAR PERIOD prior to filing.
DON’T: Incur any new debt without first asking your attorney. It MAY be a good idea to get a secured car loan before the bankruptcy filing hits your credit profile, but it is definitely NOT a good idea to max out a credit card in unsecured cash advances. If any person (or attorney) advises you to do this, RUN, do not walk, in the other direction.
DON’T: Buy any expensive new assets. Expensive means anything that you don’t want to lose. It’s really that simple.
DON’T: Give away any assets to anyone.
DON’T: Borrow money from your IRA or 401k. That money is EXEMPT but may not be (probably WON’T be) if you take a distribution and put that cash in your checking account.
