Learning About Bankruptcy Proceedings

Are You Ready to File? How to Prepare to Declare Bankruptcy

by Seth Beck

Declaring bankruptcy is not easy. It's not the act itself that is difficult but the decision-making part of it that can hold up things. Before you file, though, you might want to be ready in every way possible so that your filing will be smooth and problem-free. The below tasks will help you ensure that happens, so read on.

Be Aware of Your Credit Card Use

You cannot use your credit cards with abandon during the months before filing or you might be accused of fraud. You are limited in the number of charges as well as any cash advances. However, if you need to use a card for something important, do so and be ready to explain things later. That means you can use them for car repairs, home appliances, food, clothing, utilities, mortgage payments, and more. As long as the use was not for luxury or frivolous reasons, you should be fine.

Be Aware of Your Income

If your income falls outside of the median level in your state of residence, you might need to take a few extra steps to file chapter 7. The means test is part of your chapter 7 paperwork and if your income is too high a second form must be filled out. The second form allows filers to list expenses that might allow you to pass the means test. If not, you have two alternatives. If you expect your income to drop, you can wait and file later or you can file using chapter 13, which has no income requirements.

Be Aware of Asset Transfers 

The bankruptcy trustee, who is in charge of your case, may scrutinize your financial records during a certain period of time leading up to your filing. The trustee is in charge of identifying assets that can be sold and used to pay expenses as well as some priority creditors (like the IRS). To that end, they may object if they find any incidents where you sold or gave away an asset in the last few months before filing. They may also look for any unusual payments made. While you are certainly free to pay your bills before you file, large sums of money sent to any creditor could raise a red flag. The trustee can undo that payment if they have reason to suspect you were favoring one creditor over another.

As long as your lawyer knows about any issues, they can be prepared to smooth things over with the bankruptcy trustee. To learn more about any of the above issues, speak with a bankruptcy lawyer.