Making the choice to file for bankruptcy is a huge decision that intimidates many. How are you supposed to know what to do before filing? Are there things you’re doing right now that could impact your ability to file?
Planning for bankruptcy requires more than just making the decision to file. Each of the financial decisions you make prior to filing could have a serious impact on your ability to have your debts discharged. Let’s discuss what to do before and after you file for bankruptcy.
The Importance of Pre-bankruptcy Planning
When you decide to file for bankruptcy, there is a possibility that your property may be repossessed, though it is unlikely. Each state has different laws about what is and is not exempt, and some states allow you to use the federal exclusions while others will not. For instance, Missouri allows you to exempt $3,000 in equity in your vehicle while the federal bankruptcy laws allow you to exempt $4,000 in equity. Since Missouri does not allow you to use the federal exemptions, you can only exempt the $3,000 amount. You can also exempt $15,000 of equity in your residence by Missouri law as well.
One of the immediate concerns of those filing for bankruptcy is their cash. Since bankruptcy usually means liquidating your assets, it also means potentially losing larger sums of cash. Spending money before bankruptcy can be tricky, since spending too much or spending money on unnecessary things can be flagged as fraud and could be a reason your bankruptcy could be denied. If you make any purchases to get rid of assets, it cannot be done with the purely the intention of avoiding getting your money taken away. If you lie about your assets, spend incorrectly or transfer your assets to someone else, you could have your bankruptcy revoked or even face criminal charges.
If you are looking to spend your money and reduce cash appropriately, consider some of the following:
- Pay any outstanding taxes you owe
- Buy groceries
- Get needed car repairs
- Get needed medical treatment
- Prepay rent for a few months
When Should You File for Bankruptcy?
There are several factors to consider before filing for bankruptcy:
- Are you expecting any big upcoming bills? If you know that major medical expenses or another charge is coming up, you should probably wait before filing for bankruptcy. Once you have filed, you will have to wait a minimum of several years before you can file again, so filing too early may be a big mistake.
- Do you need to stop garnishment or litigation? If you’re facing garnishment or a lawsuit due to debt, filing for bankruptcy can help to stop these proceedings. Keep in mind that you will need to notify your creditors after filing to ensure these proceedings are stopped.
- Have I made any large purchases recently? If you made any large luxury purchases recently (think jewelry, travel, etc) it may be flagged as fraudulent if you file bankruptcy within a certain time period following the purchase. You may need to wait until the time frame has passed.
What Should You Do After Filing for Bankruptcy?
As soon as you file for bankruptcy, you set off a chain of events that are not easily stopped. It’s incredibly important to be expedient about what happens next to ensure you control what happens with your finances. Make sure to follow these tips:
- Make sure your money is in a different bank than where you are paying your home or car loan.
- Stop any automatic payments on any debt you intend to cancel with bankruptcy so it does not unnecessarily deduct your account.
- Notify your creditors of bankruptcy so you can stop any garnishments or repossessions.
- Do not create new debt during bankruptcy.
- Do not hide any assets.
- Do not sell any property during bankruptcy before talking to your attorney.
Are you planning to file for bankruptcy?
Contact Reynolds & Gold. Our team can walk you through the process of filing for bankruptcy and ensure you understand the complexities of the process.