Times are tough here in NYC and nationwide. More families are considering bankruptcy, but most don’t have a firm grasp on how the process works. There are things that you must not do before filing and other things you need to be careful with. It may sound odd, but one should “get ready” for bankruptcy. By this we mean that if you find yourself getting farther and farther behind, there are things you should do, and things you should not do, in case you have to file. One of the things you should be very careful about is engaging the services of companies that claim they will help you with your debt.
Be Careful With Debt Settlement Companies
There are two types of these companies. They both claim they will help you with your debts, but may not give you the help you need.
The first type of company is a debt consolidation company. This type of company will take all your debts, put them into a plan and give you one payment to make to the company for all of your debts. They, of course, take a fee, and will try and get your creditors to extend the time of repayment and/or lower the interest charges, but the bottom line is you will end up paying all of your debts.
If you can truly afford the payment with this type of plan, it can be beneficial to you, but remember, it may take several years before everything is settled. During that time you could have filed bankruptcy and built up your credit again, and not have had to make all those payments.
The other type of company is the debt settlement company. They will claim to be able to settle your debt for much less than you owe. With this type of company, you send them a payment each month which they will put in a bank account and accumulate the money until your creditors are willing to take something less than the full amount. Meanwhile, the creditors will be reporting non-payment to the credit bureaus.
The problem with the debt settlement company is that certain creditors are known to refuse to go along with them and when they are not paid for several months, they will sue you, garnish your wages, grab your bank accounts and make your life miserable. And, my experience with clients has been, when you discontinue the plan after several months because the payments are too high, even though there should be money in the account, clients seldom ever get a refund. Be very careful of this type of plan.
As we have said before, the bottom line is if you cannot afford to pay your debts, bankruptcy may be the best way out of your financial nightmare.
Be Careful Moving Around Your Assets
One of the common things people do before filing is to move their assets out of their name. They will transfer a house to someone else, or give someone a large sum of money to hold, or put a car in someone else’s name. All of these efforts will hurt your case.
When you file there are certain things you are allowed to keep. these are called exemptions. While the subject of exemptions can be complex, generally you can keep up to $10,000 in any asset, including cash, your household goods and clothing, a car, your retirement benefits, and often your house. If you transfer these items to someone else to “hide” them, you could lose them as there are retrieved from the person you gave them to, but if you keep them in your name, they will not be taken from you.
Transfers made within six years of filing can be undone and the asset brought back into your name so that you could lose it in your case. If you are thinking that bankruptcy may be in your future, the best advice is to get advice from a bankruptcy attorney as to what you can do and what you should not do.
Stop Using Credit Cards
It may be hard, but one thing to do is to stop using your credit cards. If you cannot get through the month without using the cards, you should seriously consider filing. Unless there is more income in your future, there may not be much else you can do.
When you use your cards shortly before filing, the Bankruptcy Code provides that certain amounts are presumed to be excepted from your discharge. These include luxury goods totaling more than $600.00 in total charged within 90 days of filing, and cash advances totaling more than $875.00 taken within 70 days of filing.
More than this, any large use of credit shortly before bankruptcy, even outside of the 70 and 90 day periods, can be held to be excepted from discharge. For example, using your cards to go on a vacation even a year before filing, or buying a large-screen television 6 months before filing, can be a problem.
Minor uses of your cards, such as to buy food, necessary clothing, or gasoline, shortly before filing, should not be a problem.
Your actions prior to filing bankruptcy can have a big impact on your case. Be sure to meet with a lawyer before making any big decisions.
Allan Bloomfield practices bankruptcy law in Forest Hills, Queens. Contact Allan today for a free consultation.