“Ok, I need to know what I can and can’t do now that I’ve decided to file for bankruptcy.” This is a common statement we hear from our clients. It’s very important to follow the guidelines discussed below to make sure you don’t run afoul with the bankruptcy rules. The time period between deciding to File Bankruptcy and actually filing is a time where you may be vulnerable to your creditors. Here I’ll explain your options for transferring assets, paying debts, incurring debts, and what to say to your creditors.
Now that you’ve decided in favor of filing bankruptcy, the handling of your estate is in the spotlight. Tread lightly and always ask your MN Bankruptcy Attorney before transferring assets. A Bankruptcy trustee is going to examine your financial affairs to make sure you’re playing by the rules. There are certain rules, in particular, you should pay attention to. Before focusing on the what you can and cannot do, we need to discuss what the word “transfer” refers to. Essentially, “transfer” refers to selling, gifting, trading, or otherwise giving away property.
You’ve worked hard for everything you have and you don’t want to lose it, especially through bankruptcy. Commonly, people want to give or sell their belongings to someone else for a nominal amount in order to protect their assets. For example, someone might sell their Harley Davidson motorcycle to their brother for $1. By selling it to their brother for $1, the motorcycle would be protected in bankruptcy because it no longer belongs to the debtor, right? Not so much. This could be a big problem in bankruptcy.
In the event the bankruptcy trustee believes a good faith transfer did not take place, the trustee either objects to your bankruptcy or recovers the asset that was transferred. If an asset is transferred within one year of filing bankruptcy, and the trustee believes the transfer was not made in good faith (meaning the transfer was made with the intent to delay, hinder, or defraud creditors), the trustee may object to you filing for bankruptcy. Even in situations where the trustee is not able to object to your bankruptcy, they may still recover assets in some circumstances. When recovering assets, trustees will look back two years. The question that is then asked is whether or not the transfer was made for less than fair value, or whether the asset transferred was transferred with the intent to defraud creditors. If the answer to either of these questions is yes, then the trustee may be able to recover the assets.
Just to be safe, follow these simple guidelines when thinking about transferring assets:
It’s difficult to imagine going from uncontrollable debt one day to no longer paying your debts the next. Truth be told, this is very possible through bankruptcy. The bankruptcy process is designed to provide individuals the debt relief they need to get their life back on track.
After you’ve made the decision to file bankruptcy and we file your case, stop paying your unsecured debts. This means stop paying your credit cards, medical bills, unsecured personal loans, etc. Otherwise, you’re just wasting your money. Now, make sure you continue paying for your secured debts and the necessities of life (mortgage, rent, vehicle loans, electric bill, etc.). Once your case is filed, an automatic stay goes into effect and you are protected from wage garnishment and collections. You are no longer responsible for paying your unsecured creditors directly for any unsecured debts you have prior to filing. So, if you have a credit card and the payment is due on the 15th of the month, but we file your case on the 12th, don’t make the payment on the 15th. Depending on whether you file a chapter 7 or a chapter 13 bankruptcy, the way your debts are discharged will be treated differently. We’ll certainly talk about this when you come in, but if you have any questions, please feel free to ask.
The debts you incur leading up to filing for bankruptcy may be scrutinized. Under the law, certain debts you incur prior to filing can be seen as fraudulent. Below are two ways of incurring debt that can be seen as fraudulent.
First, if you incur $675 or more in luxury goods or services on or within 90 days of filing bankruptcy, the debt is presumed to be fraudulent. Luxury goods and services are considered to be goods and services that are not reasonable and necessary for you or your dependents. Because these types of debts would be considered fraudulent, the debts would be nondischargable and an exception to discharge. For example, if you were to purchase a new television for your mancave worth $900 two weeks before filing bankruptcy and charge it to a credit card, the debt would be considered nondischargable.
Second, cash advances aggregating more than $950 in the last 70 days will raise a flag. For example, if your credit card offers cash advances, and you took $1500 in cash off of one of your credit cards to buy an ATV a month before filing, the cash advance would be considered fraudulent.
Good faith is the name of the game. All facts are taken into account when reviewing your particular situation. If a creditor wishes to object to you filing bankruptcy because they suspect fraudulent activity, they will have to follow specific procedures with the bankruptcy court. Although you may have incurred the debts in violation of the guidelines set forth in the Bankruptcy Code, creditors will still have to prove you did so intentionally. Their objection is not sustained simply by virtue of the presumption created. Even if you’re concerned you may have incurred a debt that would be considered fraudulent, don’t worry. We can discuss your situation and make sure we find the right solution.
Until your case is filed with the bankruptcy court you are not 100% protected from your creditors. Once we file your case, creditors are no longer permitted to, among other things, contact you, continue/initiate collection activity, garnish your wages, repossess property, or foreclose. However, before we file your case, creditors will likely be blowing up your phone non-stop. Depending on the type of debt, we will sometimes recommend you tell the creditor you have decided to file bankruptcy. Some creditors, however, try and drain your bank account as soon as you tell them you’re filing. Ultimately, the best option is to ask your creditors to stop calling you. You might say, “yeah, right, that won’t work.” Well, you’re probably right. Unfortunately, until we file your case and the automatic stay goes into effect, you’re not protected from your creditors contacting you. Once we sit down together, we can discuss your specific debts and specific ways of getting them to leave you alone.
There are certain do’s and don’ts when it comes to your financial affairs after you have decided to file for bankruptcy. Ultimately, good faith is the name of the game. However, when in doubt, ask an experienced Minnesota Bankruptcy Attorney. We will make sure you find the best possible solution to your situation.
Compare the advantages and disadvantages of bankruptcy.
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