Common Pitfalls to Avoid When Filing for Bankruptcy
A last-minute attempt to protect your finances can sometimes make a bankruptcy case harder. Transferring property, taking on new debt, leaving information off your paperwork, or filing under an unsuitable chapter can create problems that careful preparation might have avoided. Bankruptcy can provide meaningful debt relief, but what you do before and during the filing process matters.
At Webb & Associates, located in Houston, Texas, we help our clients understand what bankruptcy entails before they file and as their cases progress. If you are already trying to keep up with bills and creditor demands, bankruptcy can add unfamiliar decisions and paperwork to the mix. Knowing where problems commonly arise can help you approach the process more carefully.
Leaving Assets or Debts Out of Your Bankruptcy Filing
Bankruptcy requires you to provide detailed information about your financial circumstances. That generally includes your property, debts, income, expenses, contracts, and other financial affairs.
Do not leave property off your schedules simply because you think it has little value or assume you will be allowed to keep it. Exemptions can protect qualifying property, but that does not mean the property should be omitted from your filings.
Accuracy matters with debts as well. Incomplete information can complicate your case, while intentionally concealing property or making false statements can have serious consequences, including denial of a Chapter 7 discharge in appropriate circumstances.
If you discover an omission or mistake after filing, tell your attorney promptly rather than trying to determine on your own whether it matters.
Transferring Property Before You File
Giving property to someone else before you file for bankruptcy does not necessarily place it outside the bankruptcy process. Certain pre-filing transfers can still be included in your bankruptcy filing when the trustee reviews your financial affairs.
Be careful transferring a vehicle to a relative, giving away valuable property, or otherwise changing ownership before filing. A transaction that seemed harmless at the time can raise questions once your finances are examined.
If you have already transferred property, tell your attorney what happened and when. Trying to conceal a transfer can create a much more serious problem than simply disclosing it.
Choosing the Wrong Bankruptcy Chapter
Chapter 7 bankruptcy and Chapter 13 bankruptcy apply differently depending on your disclosed finances, income streams, and debts. Choosing the wrong bankruptcy chapter can significantly impact your ability to discharge your debts and seek relief.
Chapter 7: Chapter 7 bankruptcy generally focuses on discharging qualifying debts. A trustee will be assigned by the court to liquidate nonexempt property, and your eligibility for relief will depend on your ability to pass a means test.
Chapter 13: Under Chapter 13 bankruptcy, you have the opportunity to submit a repayment plan to pay back your debts over three to five years. This is most suitable for individuals with a steady income, and it provides an option for those who need time to address certain secured debts.
Your income, debts, property, eligibility, and financial goals can all affect which chapter is right for you. If keeping a home or catching up on certain obligations is a major concern, for example, the differences between the chapters may be particularly important.
Before filing, seek advice from an experienced Texas bankruptcy attorney who can help you understand how each option would affect you instead of choosing based on assumptions about which chapter is easier or faster.
Taking on New Debt Shortly Before Filing
New borrowing before you file for bankruptcy can create complications, particularly because not every debt is necessarily dischargeable. The Bankruptcy Code contains exceptions that can apply to certain debts based on their nature and the circumstances in which they were incurred.
Do not assume that a large purchase, cash advance, or other new obligation will simply disappear once you file. Whether a particular debt can be discharged depends on whether it is classified as secured or unsecured.
If your money is already tight, using available credit may feel like the most practical way to cover expenses. However, if filing for bankruptcy is a realistic possibility, discuss significant new borrowing with your attorney before assuming it will have no effect on your case.
Missing Required Steps Before or After Filing
Submitting a bankruptcy petition is not the only requirement. Individual debtors generally must complete approved credit counseling before filing and may have additional obligations as the case proceeds. Depending on the type of bankruptcy you file for, those responsibilities can include:
Completing required pre-filing credit counseling
Providing financial records and other required information
Attending the Section 341 meeting of creditors
Cooperating with the bankruptcy trustee
Completing required financial-management education before discharge
A Section 341 meeting provides the bankruptcy trustee and creditors with an opportunity to question you about your debts, property, and financial affairs. Failure to complete the applicable financial management requirement can also interfere with the discharge of applicable debt.
Several procedural requirements can be difficult to keep straight when you are also dealing with the financial problems that led you to bankruptcy. Staying in communication with your attorney can help you know what is required and when.
Filing Without Knowing Which Debts Can Be Discharged
Bankruptcy can eliminate personal liability for many debts, but a discharge does not erase every financial obligation. Certain debts may survive bankruptcy depending on their nature and the chapter involved. Some debts that usually aren't dischargeable include:
Domestic support obligations
Certain taxes
Most government-funded or guaranteed student loans
Valid liens that have not been voided
Before filing, identify the debts that create the greatest financial pressure and determine how bankruptcy is likely to treat them. Otherwise, you could enter the process expecting relief from an obligation that bankruptcy may not eliminate.
Contact an Experienced Bankruptcy Attorney in Houston, Texas
At Webb & Associates, we are dedicated to helping you evaluate your options, prepare accurate filings, and understand what to expect as you seek debt relief through bankruptcy. If you are considering filing for bankruptcy, reach out to our office in Houston, Texas, to schedule a consultation and discuss your options.
Our attorney, Timothy Webb, has practiced law since 1995 and focuses a significant part of his practice on bankruptcy. He is also a member of the National Association of Consumer Bankruptcy Attorneys and the Houston Association of Consumer Bankruptcy Attorneys.