Mastering Bankruptcy Planning in Illinois: Key Steps for a Fresh Financial Start
Don't Jeopardize Your Bankruptcy Case: Avoid Last-Minute Charges Before Filing in Illinois
The day you decide to file for bankruptcy protection, you should immediately stop adding to the debt. Don’t charge anything. I’ve been told by clients that they were told by friends or relatives that they could go ahead and “take what’s left” off the credit lines of their accounts before they filed for bankruptcy.
What does this mean? It turns out they were talking about charging right up to their credit limit and then filing bankruptcy. This is wrong. First, it’s fraudulent because they know when they’re incurring the debt that they have no intention of paying it back.
Even if it weren’t morally wrong (which it is), it is legally risky.
Under bankruptcy law, creditors can object to a particular debt being wiped away. The typical reason is fraud. When the creditor gets the notice that you filed, it takes a look at your account history. If it sees a bunch of charges right before filing, it will get suspicious.
That doesn’t mean the creditor will automatically cause trouble. If the amounts were small and not for luxury goods, the creditor might not bother about it. But you shouldn’t give the creditor any reason to be suspicious.
Full Disclosure: Why It's Crucial to Tell Your Lawyer Everything
You don’t want to be special in bankruptcy
Your goal is to have your case slide on through the system, with no red flags and no questions raised. That’s why it’s important that you tell us everything about our case. We don’t want a client to have taken the advice of a wacky friend and made some last-minute charges before coming to see us and not letting us know about the charges. There are ways to plan around problems — we just need to know that there may be a problem.
Taking Responsibility: The Importance of Paying Something Toward Recent Charges
For clients who have charged something large recently, I suggest they make some payments to that creditor in the meantime. When the creditor looks at your account, it will look at the recent charges, but it will also look at the recent payments. If you make a large charge right before filing and then make no payments, it will look fraudulent. But if you let some time pass and you make a few payments after the last charges, it looks as if you are indeed trying to pay it back. Think of it as putting an extra quarter in the parking meter. It may not be necessary, but it’s a small price to pay to avoid a larger expense down the line.
At the same time, you probably don’t want to pay those other guys anything. You can probably safely stop paying on your unsecured credit cards. Except as described above, you’d be throwing money down the drain.
Prioritizing Essential Needs: The Importance of Paying Basic Expenses and Your Lawyer
You need whatever cash you have for basic needs.
We’ve seen clients let rent go unpaid so that they could pay the persistent collector from Visa. You have to take care of your family first and that means keeping a roof over your head. Of course, you should continue to pay your regular monthly expenses, such as rent and utilities. You should also stay current on any car payments on cars you wish to keep.
Another good use of your money right now is to pay your lawyer. Once you’ve decided to file bankruptcy, you need legal help and that requires paying your attorney.
Protecting Your Future: Why You Should Avoid Using Retirement Funds to Pay Debts
Taking a loan or withdrawing from an exempt retirement account to pay bills is usually not advisable. You certainly should consult with an attorney prior to taking such a withdrawal or loan.
Avoiding Favoritism: The Pitfalls of Showing a Preference to One Creditor in Bankruptcy
Another factor in paying creditors right before filing involves something called a preference. The court doesn’t want you to play favorites and pay a chunk of money to some creditors and not pay the rest. The Trustee can reach back ninety days to recover money paid to general creditors and spread it out more evenly to all of your creditors. The Trustee can also reach back one year if the money was repaid to a relative or insider. So it is not a good idea to pay back your mom a large amount of money right before you file bankruptcy. You might be wondering how the Trustee will know if you paid someone back. It is because you have to tell them, You sign your bankruptcy papers under penalty of perjury. The worst thing you can do is lie.
Transparency Is Key: The Risks and Consequences of Hiding Assets in Bankruptcy
Some people want to go too far with this and actually hide their assets. They’ll ask if they should take all the money out of their bank accounts before they file. I ask what they’re going to do with it. The answer is usually to stick it under the mattress or give it to their brother to hold for them.
Neither scenario will work. Either way, the money is still their property. They still have to list it on their petition.
Strategic Planning: Why Careful Consideration of Asset Sales is Essential Prior to Filing
Other people want to sell off their property right before filing. This can be appropriate, but you should be careful. It might make sense to liquidate some property that wouldn’t be protected. You could sell something and then use the money to catch up on your basic expenses and pay your bankruptcy attorney.
A certain amount of pre-bankruptcy planning is allowed. But I can’t say exactly how much would be allowed in your case. There is a saying in the bankruptcy community: “It isn’t a problem until a pig becomes a hog.”
The main rule is to disclose, disclose, disclose. First, tell your lawyer everything about your case. Then, make sure everything is listed somewhere on your petition. The most trouble you can get into with a bankruptcy court is by hiding something.
Meeting Legal Requirements: Understanding the Significance of Mandatory Credit Counseling in the Bankruptcy Process
It’s now required. There can be a long wait to get an appointment to see or talk to a counselor. You don’t want to be in the position of being ready to file and unable to do so because you haven’t taken care of this.
Preserving Asset Integrity: Why You Should Avoid Transferring Property in Bankruptcy
It is important for you to be aware that transferring title to a property before declaring bankruptcy may not be an option. If you transfer property within four years before filing and do not receive some equivalent value in return, the bankruptcy trustee will avoid the transfer and recover the property or money from the person to whom it was transferred.
This problem often arises when you transfer a title to a vehicle to a friend or relative and aren’t paid for the vehicle or when you quit the claim deed your interest in real estate without receiving some payment for your interest.
Securing Your Assets: The Importance of Continuing Payments on Cars and Houses You Intend to Keep
You should continue making payments on all vehicles and real estate you wish to keep. Remember, you must keep these payments current, the property insured and sign a reaffirmation agreement in order to keep the secured property.
Safeguarding Your Finances: Why Closing Bank Accounts with Owed Debts Is Recommended
If you owe a bank or credit union money and you have any accounts with them, you should close all of your accounts and get all your money out before your bankruptcy is filed. These institutions can freeze your accounts and take the money in them to pay for the debts you owe them.
Financial Stability: The Importance of Having an Open Bank Account
You should have a bank account open at a bank so you do not owe money before your bankruptcy is filed. Although obtaining future credit is relatively easy after your bankruptcy, opening a bank account is extremely difficult.