If filing for bankruptcy is your best option, there are a few things you should know. Join us and learn how to protect yourself during bankruptcy today.
Filing for bankruptcy may be a legal option, but it’s still important you protect yourself during bankruptcy.
If you are struggling financially, filing for bankruptcy may be the best option for you to explore. It is not something you normally consider but when you face the reality of financial ruin, you do need to look at it and do some planning for it. Bankruptcy provides an option to help you out in a number of different areas.
Bankruptcy can wipe out credit card debt as well as other unsecured debts. It can stop creditor collection activities and harassment. It can get rid of some kinds of liens. It can prevent a creditor from repossessing your property. And it can eliminate obligations for alimony and child support in some cases.
But bankruptcy does not eliminate all debts. For example, it will not help with overdue taxes or student loans. However, the financial plan created as part of the bankruptcy process can help with these issues.
Retirement accounts are normally excluded from the bankruptcy process unless you are withdrawing funds from your retirement accounts to pay bills.
How to protect yourself during bankruptcy
Part of protecting yourself before filing is understanding what will be covered and not covered by bankruptcy. You need to be informed before taking this big step.
Going through the bankruptcy process can be very stressful and somewhat confusing. There are several different forms of bankruptcy including Chapter 7, Chapter 11, Chapter 13. A good bankruptcy lawyer can help you decide which one is best for you.
A bankruptcy attorney can also help you with the process and with suggestions on what actions you should take before, during and after filing for bankruptcy. The filing process itself is one strategy, but there are others you should also consider.
Open a new bank account
The first thing to do is create a new bank account. One of the advantages of bankruptcy filing is getting an automatic stay against collections. However, some creditors like banks, savings and loans, and credit unions are still legally allowed to take setoffs against funds you owe them.
If you are behind in credit card payments to a bank or credit union, and you file for Chapter 7, for example, these creditors can still withdraw money from a deposit account like your checking or savings account, certificate of deposit or money market account.
To protect yourself during bankruptcy, go to a different financial institution where you have no debt and open a new account. Use this account for direct deposit and transfer any other funds you have to this account.
Be aware of limits on setoffs
There are some limitations on bank and credit union setoffs. Most courts say that banks cannot use setoffs on income that is considered exempt under federal or state law, such as unemployment compensation, disability benefits, public assistance or Social Security benefits.
Banks and credit unions cannot take money out of your account to pay for missed consumer credit card payments – unless you have authorized the bank to make automatic withdrawals.
There are also various state limits on setoffs. In California, state-chartered savings and loan setoffs are prohibited if the balance of all your accounts with your bank is under $1,000.
Stop auto withdrawals
Opening a new account is a good idea. You should stop auto withdrawals from your previous bank for unsecured debts like credit card payments as soon as you file. You should use the new account for auto withdrawal on maintenance debts like utilities, car or cell phone.
You should stop auto withdrawals from your previous bank for unsecured debts like credit card payments as soon as you file. You should use the new account for auto withdrawal on maintenance debts like utilities, car or cell phone.
This simple step will help you avoid penalties and fees associated with failed transactions, which could help protect you during bankruptcy.
Have cash on hand for utilities
When you file for Chapter 7 and you are behind in your utility payments, your provider cannot go after you to collect what you owe. However, if you made a deposit, your provider can use that as partial payment on that debt. This can still leave you behind as you move forward with the new month’s bill, and the provider can ask for a new deposit. You should bring all your utility bills current before filing or have cash on hand to pay for them going forward.
Cut up your credit cards
Bankruptcy is a process to help you survive the large debt you have already amassed. It is not a way to build up a lot of debt quickly and then try to have it wiped out through filing. Credit card companies would question this activity and in fact, suspect that it might be fraudulent.
If it were found that you were planning on filing for bankruptcy and maxed out your credit cards in the preceding weeks or even months, you could be charged with fraud and most likely not have that debt discharged during bankruptcy. It could also lead to the dismissal of the discharge of all debt for the entire bankruptcy.
Create a workable budget
The bankruptcy won’t work if you cannot afford to maintain the new plan for repayment of debt. In Chapter 13, the plan will be based on the debts you need to repay and your ability to make the payments. The latter is determined by your disposable income.
The disposable income is the amount you will pay into your Chapter 13 plan every month. It is calculated by taking your monthly take-home pay and deducting personal and household expenses.
Some of that disposable income might be used in discretionary spending like cable TV. If you need more disposable income to pay into your Chapter 13 plan, you can cut back on some of this discretionary spending.
In any event, the budget you come up with must be a realistic one that you can maintain for the next few years to make your Chapter 13 plan work.
Follow the rules of bankruptcy filing
There is a set of rules to follow when filing for bankruptcy. Here is where an attorney can be most helpful. The process involves appearing with an attorney to answer questions by the bankruptcy trustee. There is also a Notice of Commencement of Case from the Court that sets the date and time of the first meeting with creditors where they get to ask you questions.
There are many things that can happen during bankruptcy proceedings. Creditor claims may differ from what you disclosed. This could affect the payments you need to make. Creditors can object to your claims. A trustee may dismiss your case entirely because you did not file all required paperwork or were late doing so.
After your bankruptcy plan is established, the case is not over. There is a variety of communications that occur during the three-to-five-year period that follows. Read and if necessary respond to mail you receive from your attorney, the trustee, or creditors and their attorneys. Review all creditor proofs of claims and let your attorney know if you disagree with any of them.
BY keeping in constant communications with your bankruptcy attorney, you will have the guidance you need to observe all requirements so you can protect yourself during bankruptcy. This step will also help you plan the personal budget and lifestyle changes that will put you back on the road to financial viability and success.