What Not to Do Before Filing a Chapter 13 Bankruptcy in California

What Not to Do Before Filing a Chapter 13 Bankruptcy in California

Dealing with the weight of unmanageable bills can be overwhelming. If you are facing significant financial pressure, you might be tempted to file for bankruptcy protection as soon as possible without planning. However, knowing what to avoid before filing for Chapter 13 bankruptcy is critical for helping the process to proceed more smoothly. Here are some tips about things to avoid before you file for Chapter 13 bankruptcy protection.

Don't file for Chapter 13 bankruptcy too soon.

If you've filed for bankruptcy in the past, you will want to know the rules for when you are eligible for a discharge under a second bankruptcy. While a Chapter 13 bankruptcy can allow you to receive a discharge of certain remaining unsecured debt balances after you complete a repayment plan, you can only receive a discharge in bankruptcy at specific intervals. If you file a Chapter 13 bankruptcy too soon after a previous bankruptcy, you will not be able to receive a discharge in the second case. Here are the intervals for when a second Chapter 13 can be filed to receive a discharge at the end of your repayment plan:

  • If the prior bankruptcy discharge was granted in Chapter 7, 11, or 12, four years from the filing date of the previous bankruptcy case
  • If the prior bankruptcy was a Chapter 13, two years from the filing date of the previous case

While you are waiting between bankruptcy filing dates, you might also face other problems that you will want to resolve before filing. For example, if you are accumulating significant medical debt because of an illness, it might be a good idea to wait to file for a new Chapter 13 bankruptcy so that it will include all of your accumulated debt.

Don't wait too long to file for Chapter 13 bankruptcy protection.

In some cases, it is advantageous to file a petition for bankruptcy as fast as possible. For example, if you are facing foreclosure, have a wage garnishment, or are in danger of having your vehicle possessed, filing quickly might free up some money to pay your bills.

If a creditor has filed a lawsuit against you, you will want to talk to a bankruptcy attorney at the Shulman Law Office. Your lawyer will analyze the complaint to determine if it contains an allegation of fraud. If it does, filing for bankruptcy quickly rather than waiting might make sense. If the creditor receives a judgment against you for a fraud allegation, the debt will unlikely be considered dischargeable in bankruptcy.

After a creditor secures a judgment against you, the judgment will give the creditor lien rights. This allows the creditor to levy your bank accounts, seek a wage garnishment, file a repossession for your vehicle, or foreclose on your home. Filing for Chapter 13 bankruptcy might end further collection activities, including the lawsuit, so that you can have more time to catch up on your payments.

In some cases, it might be a good idea to file a Chapter 13 bankruptcy even when you haven't reached the end of the waiting period to receive a discharge. The bankruptcy code does not contain a provision preventing you from filing a new bankruptcy case soon after an earlier one. However, filing a second Chapter 13 bankruptcy case immediately after a Chapter 7 will not result in a discharge.

When you file a Chapter 13 immediately after receiving a Chapter 7 discharge, it is sometimes referred to as a Chapter 20 bankruptcy. This can make sense if you have certain priority debts that you need more time to catch up on and that are not dischargeable. For example, if you have priority debts like child or spousal support arrearages, federal income tax debt, or are in danger of foreclosure, filing a Chapter 13 bankruptcy after receiving a discharge of your non-priority debts can make sense. You can use the repayment period in the Chapter 13 case to catch up on your payments and avoid other problems.

Do not take early distributions from your retirement account to pay debts.

Most types of retirement accounts are protected in bankruptcy. You should never take early distributions from your retirement to pay debts that would likely be included in your bankruptcy estate.

If you do, you will be using funds that would likely be protected. Taking an early distribution before reaching age 59 1/2 from your retirement account can also result in early withdrawal penalties from the IRS and other tax issues. If you are facing mounting bills that you cannot pay, it is a much better idea to talk to an experienced bankruptcy lawyer at the Shulman Law Office instead of taking money from your IRA or 401(k).

Do not provide incomplete, false, or inaccurate information.

When you are filling out your bankruptcy schedules, you might be tempted to leave out information about certain debts, income sources, assets, expenses, or financial history. However, you are required to provide complete and accurate information. If the bankruptcy court finds that you knowingly left something out or provided false information, you could face harsh criminal penalties, including up to 20 years in prison and a fine of up to $250,000.

If you fail to file all of the required documents, the court could dismiss your bankruptcy case or require you to file more documents to correct your paperwork and pay additional fees. Failing to name a creditor means that the creditor might not be included in your plan. Your bankruptcy lawyer can help you to ensure that your forms are completed correctly to avoid potential problems.

Do not accrue new debt.

You should avoid accruing new debt during the 90 days before you file for bankruptcy unless you had no other choice for paying for necessities. The creditor could object to your bankruptcy plan and argue that you committed fraud by taking out the loan without intending to repay it. Do not make luxury purchases with your credit cards or apply for loans within 90 days of filing your petition.

Do not transfer, sell, or hide assets.

When you fill out your bankruptcy paperwork, you will have to give information about any assets that you own. You might be tempted to transfer some of your assets to family members or friends or try to hide them. You should never do this. If you do, the bankruptcy court could dismiss your case. You might also face criminal prosecution. If you did sell some assets to pay your basic expenses, you will simply need to explain your transactions and supply any documents to support the reasons.

Do not fail to disclose anything.

When you file for Chapter 13 bankruptcy, transparency is required. Make sure to disclose everything to help your case proceed more smoothly and to avoid potential problems. After you fill out your paperwork, you will have to sign your petition and declare that you have provided complete and accurate information under penalty of perjury. If the court thinks that you attempted to defraud it, you could face criminal prosecution. If you have any questions about your bankruptcy schedules or forms, don't hesitate to reach out to your attorney at the Shulman Law Office for help.

Do not make preferential payments.

The bankruptcy court has a 90-day clawback period for general creditors and a one-year clawback period for friends and relatives. If you have loans that you have repaid during these time periods, the bankruptcy court might consider the payments you made to creditors within 90 days or friends and family members within one year of the date you file your bankruptcy petition, the trustee can reach back and undo these payments. Bankruptcy is meant to place your creditors on an equal footing for fairness. Payments made preferentially to certain creditors over others may be considered to be preference payments and undone by the court. You do not want the bankruptcy trustee to file an adversarial proceeding against a close family member or friend to get the money you paid to them back.

Do not file for bankruptcy protection when you are expecting an inheritance or settlement within a year.

If you anticipate receiving an inheritance, lawsuit settlement, or another windfall soon, you should think about waiting before you file for bankruptcy. Once you receive the money, you might no longer be bankrupt. If you are in this type of situation, you should talk to a bankruptcy attorney at the Shulman Law Office to learn about the options you might have.

Do not fail to file your income tax returns.

Under the IRS rules, you are required to file all of your tax returns for tax periods ending within four years of the date you file for Chapter 13 bankruptcy. If you haven't filed all of your returns, you should go ahead and file any that are missing before you file for bankruptcy.

If you owe taxes, they can be included in your bankruptcy estate and repayment plan. The repayment plan can give you time to catch up on what is owed. Tax debts are priority debts, meaning they will not be discharged in bankruptcy. However, having up to five years to catch them up can be helpful. Even if you have returns from longer than four years ago that you have not filed, you should file them so that all tax debts can be included in your repayment plan. The statute of limitations for the IRS's ability to collect on tax debts does not start running until an assessment is made. This means that the statute of limitations for collections will not begin running until you file any missing tax returns.

Get help from the Shulman Law Office

Deciding to file for Chapter 13 bankruptcy is a big decision. If you are thinking about filing for bankruptcy protection, you should speak to an experienced bankruptcy lawyer at the Shulman Law Office to learn about your options. We can review your case and explain the type of bankruptcy that might work the best for you and other potential options to resolve your debts. Schedule a free consultation by calling us at 408.297.3333.

 


What are the Upsides and Downsides of Filing for Bankruptcy?

What are the Upsides and Downsides of Filing for Bankruptcy?

Many Californians are struggling with unaffordable levels of debt. While many people qualify to file for bankruptcy, some never do. For some people, filing for bankruptcy is the best solution to managing their debts. Deciding if you should file for bankruptcy will depend on your financial circumstances and the potential ramifications. An experienced bankruptcy attorney at The Shulman Law Office can help you to determine whether bankruptcy is the right choice for your situation. Knowing the upsides and downsides of filing for bankruptcy can help you to decide if and when you should file a bankruptcy petition.

What are the upsides to filing for bankruptcy?

Filing for bankruptcy offers multiple benefits for people who are unable to afford their payments. Some of these advantages provide good reasons for people to consider filing for bankruptcy.

Issuance of an automatic stay

When you file a bankruptcy petition, the bankruptcy court will issue an automatic stay. This is an injunction that prohibits your creditors from engaging in any further collection activities. The stay does not eliminate your debt, but any debt collection activities will be suspended until the stay is lifted or your bankruptcy case is over. The automatic stay will end letters and calls from debt collectors, wage garnishments, foreclosure proceedings, creditor lawsuits, and repossessions.

If one of your creditors continues to engage in debt collection activities after the automatic stay has been issued, your bankruptcy attorney can file a motion with the bankruptcy court to hold the creditor in contempt of court. The court can then force them to stop trying to collect on the debt and order them to pay a fine and possibly pay damages to you.

An automatic stay in a bankruptcy case will not stop tax audits, criminal proceedings, child support, alimony, or efforts to collect the debt from cosigners. If you previously filed for bankruptcy during the last year, you can ask the court to extend the initial automatic stay. However, if you have filed for bankruptcy several times during the past year, the automatic stay will have to be ordered by the court.

Ability to discharge debts

While some types of debts are non-dischargeable in bankruptcy, others can be discharged. When a debt is discharged, it ends your obligation to repay it. When your bankruptcy case is over, the creditor for a discharged debt may not resume collection activities. Dischargeable debts include many types of unsecured debts, including medical bills, credit card debt, and personal loans. Secured debts will not be discharged, however. There are also certain types of debts that cannot be discharged in bankruptcy, including back child support and alimony, student loans, certain types of taxes, criminal restitution, and others.

Bankruptcy exemptions

California has two bankruptcy exemption systems that you can choose from. Exempt property is not included in your bankruptcy estate and cannot be sold by the trustee to repay your creditors. The exemptions let you keep the exempted property after you file for bankruptcy. Some exemptions apply to specific types of assets while others apply to property worth up to a specific dollar amount. Other exemptions can be applied to anything that you own. Bankruptcy exemptions help you to save some of your property during and after your bankruptcy case.

Surprising improvements of credit scores

When you file for bankruptcy, it will make your credit score fall and will remain on your credit history for seven to 10 years. However, many people who file for bankruptcy see score improvements once their debts are discharged. They can then begin to rebuild their credit and enjoy a fresh start. However, even if bankruptcy is the right option for you, understanding the consequences is also important before you file.

What are the downsides of filing for bankruptcy?

While filing for bankruptcy offers some benefits, there are also some disadvantages that you should consider. Knowing the downsides of filing for bankruptcy can help you to know what to expect.

Immediate drop of your credit score

When you file for bankruptcy, your credit will be immediately impacted. The bankruptcy will stay on your credit record for seven years if you file for Chapter 13 bankruptcy or 10 years if you file for Chapter 7 bankruptcy. Having a bankruptcy on your credit record can make it more difficult to get a mortgage or other loan for several years.

Losing your credit cards

When you file for bankruptcy, your credit card companies will likely cancel your cards. After your debts are discharged, you may receive credit card offers. While these can help you to rebuild your credit after bankruptcy, they will likely carry high rates of interest and annual fees.

Losing some types of property

While California has exemptions available for some types of property, not all property can be exempted. If you have high-value property or non-exempt assets, the bankruptcy trustee might seize them to sell and repay your creditors.

Some debts can't be discharged

Some types of debts cannot be discharged in bankruptcy. These include most student loans, certain tax debts, alimony, child support, and criminal restitution. Your obligation to repay these debts will continue after you receive a discharge of your dischargeable debts.

Cosigner liability

If you had a cosigner for a personal loan and file for bankruptcy, the creditor can still pursue your cosigner for payment. His or her liability to repay the debt will not be erased because of your bankruptcy. You should tell a cosigner that you intend to file for bankruptcy before you do. He or she will also be notified by the bankruptcy court after you file.

Stigma

Some landlords and prospective employers ask about bankruptcy cases. If you apply for a job or an apartment after you file for bankruptcy, it can hurt your chances.

Talk to an experienced bankruptcy lawyer today

The decision to file for bankruptcy is complex. Understanding the upsides and downsides of bankruptcy is important so that you can make a more informed choice. If and when you should file for bankruptcy will depend on your financial circumstances. To learn more about whether it is the right decision for you, contact the Shulman Law Office in San Jose today by calling us at 408-297-3333.

 


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