Protect Yourself During Bankruptcy

How to Protect Yourself During Bankruptcy

Protect Yourself During Bankruptcy

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.

 

18 replies
  1. Vivian Black says:

    It’s interesting to learn that if one is having trouble filing bankruptcy as there can be different confusing classifications of it, you can get yourself a bankruptcy lawyer. That should be able to provide them proper guidance through a difficult period in their life. Honestly, if I were ever to be bankrupt, I would most probably appreciate having a lawyer who I can lean on being there for me. Thanks!

    Reply
    • SFVB Attorney Referral Service says:

      Vivian,

      Very true. Filing for bankruptcy can be a stressful process, especially considering the complexities and differences between chapter 7, chapter 11, and chapter 13 bankruptcies.

      Thanks for reading!

      Reply
  2. Khorae Olivier says:

    Thank you for the information about how bankruptcy is not a get out of debt free card and using it like it is will make the credit card companies think it’s fraudulent. My father applied when he was very young and told me all about the gravity of the situation. I think getting a bankruptcy lawyer would really help you at the time you file and that you didn’t file after maxing all your cards in the weeks preceding.

    Reply
    • SFVB Attorney Referral Service says:

      Thanks for reading, Khorae.

      We agree – speaking with an experienced bankruptcy lawyer before you file is a great way to avoid potential problems later.

      Reply
  3. Charles Mitchell says:

    I appreciate it when you said that a person should cut their credit card months before they file a bankruptcy because the companies might doubt it and charge the person with fraud. If so, then I am so glad that my friend has stopped using his credit cards more than a year ago. They have no reason to doubt him. Now all he needs is to find a reliable bankruptcy litigation lawyer. Thank you!

    Reply
    • SFVBA Attorney Referral Service says:

      Charles,

      Yes, it’s always better to err on the side of caution if filing bankruptcy is an option you’re considering. Thanks for reading!

      Reply
  4. Amy Winters says:

    Thanks for pointing out that a bankruptcy attorney will be able to help you answer the questions of the bankruptcy trustee. My brother has had a rough couple of years and is thinking about filing for bankruptcy. Last time I talked to him he seemed confident that he could handle the process himself, but I’m not sure he knows he’ll have to appear in court and answer questions. I’ll definitely suggest he hire a bankruptcy lawyer!

    Reply
    • SFVBA Attorney Referral Service says:

      Thanks for reading, Amy.

      If your bother is in the San Fernando Valley area of Los Angeles and needs help finding an attorney, we may be able to help arrange a free consultation with an experienced bankruptcy attorney.

      To speak with one of our friendly attorney referral specialists, give us a call at 818-340-4529.

      Reply
  5. Mina Edinburgh says:

    I appreciate it when you pointed out that the person needs to open a new account in a different financial institution if they want to declare bankruptcy so that the creditors cannot take money from them. This just proves that bankruptcy is a very complicated thing. I will mention this to my friend since he intends to file one. Surely he would want to protect the only asset he has left.

    Reply
  6. Ridley Fitzgerald says:

    It’s great to know more about bankruptcy. I like how you said that a good lawyer can, first of all, help us decide which type to file. We’re looking at our options, so it’d be great to talk to a professional to get their opinion.

    Reply
    • SFVBA Attorney Referral Service says:

      Ridley,

      We’re happy to hear you’re taking the steps needed to protect yourself during bankruptcy. Thanks for reading!

      Reply
  7. Tim Yaotome says:

    As I am now aware that one should ask a bank or credit union to stop withdrawing automatically from old accounts in order to avoid penalties, I believe that one should ask a legal professional to assist one during bankruptcy. They can help file and arrange the necessary paperwork to file it. Also, they can help negotiate with said establishments to reorganize one’s finances to recover faster from financial loss.

    Reply
  8. Thomas Westgren says:

    It’s nice how you said that bankruptcy can help you get out from under your debts whether secured or unsecured. Hiring a debt bankruptcy lawyer who could help you learn how to best proceed with getting rid of your debt. Having a good start would be essential to ensure that you don’t have any troubles after you declare bankruptcy.

    Reply
    • SFVBA Attorney Referral Service says:

      Thomas,

      Yes, an attorney who specializes in bankruptcy will ensure your interests are protected as you navigate the process. Thanks for sharing.

      Reply
  9. Michael Lee says:

    If I was going to declare bankrupt, I would use a bankruptcy lawyer. I would not want to lose everything that I have. It is good to know that the lawyer can point you to the right type of bankruptcy.

    Reply
    • SFVBA Attorney Referral Service says:

      Michael,

      Bankruptcy is a complicated process. Hiring the help of a bankruptcy lawyer will ensure you navigate the process safely. Thanks for reading!

      Reply

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