When it comes to filing for bankruptcy there are many things that you should do and shouldn’t do prior to filing. First and foremost the Bankruptcy Court requires individuals that are filing for bankruptcy to be totally honest and upfront in everything they do. Any indiscretion can end up in the dismissal of the bankruptcy discharge putting the individual back in fair game for the creditors. A person should really sit down with a bankruptcy attorney and discuss the do’s and don’ts prior to the bankruptcy filing to make sure they have a full understanding of what’s required of them. When it comes to dealing with the government it’s more of a do as I say then do as I do situation. Although it’s important to be honest with the court, it’s sometimes pretty hard to understand this requirement with all the corruption in the government agencies. The federal government keeps talking about how transparent they are while at the same time all these scandals continue to come out showing the complete opposite.
Even though the bankruptcy attorney tells their clients what to do, it seems that many of them just don’t listen and end up getting in some sort of trouble. Someone filing bankruptcy should stop spending on their credit cards immediately upon the decision to file. As a rule of thumb, 90 days is a good amount of time but six months is much better prior to filing the bankruptcy petition. The creditor can contest the bankruptcy filing if they believe the debtor was loading their cards prior to filing.
One mistake many people make prior to filing bankruptcy is borrowing money from their 401(k) or retirement plan to pay debts. Although this is noble to grab some of this money to pay off a few bills, it is foolish to borrow money from their retirement plan that is protected by bankruptcy exemption laws. If the person doesn’t have enough money to completely pay the debts off with this sort of plan, they might just end up filing Chapter 7 bankruptcy after they burn through their retirement. Then there are left bankrupt and poor with no retirement at all. Another thing also happens in this situation, the bankruptcy court looks at this newfound money as income and taking these funds might make the person unable to qualify for Chapter 7 bankruptcy. For these people it could be a double whammy against them. They lost their retirement and now they don’t even qualify to file Chapter 7 bankruptcy when they really need to. If they only would have listened to their attorney and didn’t dig into their retirement account.
Another common occurrence happens when someone is filing bankruptcy due to loss of a job. Sometimes they will search for work out of state or maybe even have to move with a distant family member because of the lack of funds. When a person is filing bankruptcy, they need to file in the state in which they reside. In the past, many people used to move to a state that would benefit them in their bankruptcy filing. They would check all the bankruptcy exemption laws and move to the state that protected the most amount for their individual situation. Now, after changes to the bankruptcy code, a person must reside in the state for six months before filing bankruptcy to use the bankruptcy exemption laws of that state. You can’t move temporarily to benefit from the bankruptcy filing.
It’s best to consult a bankruptcy attorney when things start getting tough and discuss a possible move with the attorney. Sometimes it might be in one’s best interest to stay where they’re at until the bankruptcy filing is complete. If someone has to move for work and is in a hurry, don’t worry, they can still file for bankruptcy in the state they’re moving to, they just might not be able to use the bankruptcy exemptions for the state they’re moving to. They will have to either use the federal bankruptcy exemptions or the state exemptions from where they moved from.
In today’s economy, we are seeing many people moving cross country in search of work. Sometimes people think the grass is greener on the other side of the fence and think they can avoid filing bankruptcy if they can just find an opportunity. They only find out that things are just as bad everywhere and the bankruptcy is still necessary. The best advice is to discuss the situation with the bankruptcy attorney before any moves are made.