6 BIG MISTAKES TO AVOID BEFORE FILING BANKRUPTCY

Transcription

1 6 BIG MISTAKES TO AVOID BEFORE FILING BANKRUPTCY Tips from bankruptcy professionals on how you can PROTECT your assets PROVIDED BY FLEXER LAW MIDDLE TENNESSEE BANKRUPTCY ATTORNEYS

2 6 BIG MISTAKES TO AVOID BEFORE FILING BANKRUPTCY SO YOU RE THINKING ABOUT BANKRUPTCY. You re not alone. Thousands of Middle Tennesseans file for bankruptcy protection every year. The Bankruptcy Law was made to protect honest consumers like you when you fall on hard times. However, the law can be complicated. We put this book together to help you watch out for some all-too common mistakes that people make right before filing for bankruptcy. You can save money, time, legal fees, and even personal relationships by reading what s inside this book. IN THIS REPORT: -Avoiding getting in trouble for fraudulent conveyances and transfers -Know what you can and cannot keep when filing bankruptcy (It s more than you may think!) -How to spend your tax refund if you re anticipating bankruptcy -Know which debts you can and cannot discharge before you file -Find out which type of bankruptcy you qualify for and how to use it to your advantage -Time is money: Know when to get help! This report is not to be taken as legal advice, nor does it constitute an attorney-client relationship. However, if you would like legal advice, you can call our office any time to speak with one of our attorneys. We re here to help you - it s our job! Flexer Law is a debt relief agency. We help people file for bankruptcy under the Bankruptcy Code. Flexer Law & The Law Offices of James Flexer All rights reserved. 1

3 AVOID MISTAKE #1: FRAUDULENT CONVEYANCES AND PREFERENCES BE CAREFUL WHO YOU GIVE MONEY TO! By Michelle Spezia Individuals and business owners not familiar with the bankruptcy process often believe that the bankruptcy court will sell everything they own, which is called liquidation. In some cases, liquidation is part of the bankruptcy. However, there are options for keeping property and still receiving the benefits of a bankruptcy. Always consult a bankruptcy professional about your options by disclosing everything you own. What you own cannot be protected if your attorney is kept unaware of your property! Sometimes, individuals or businesses who have been hounded by creditors believe the only way they can protect their house or their car is to legally remove their name by quitclaiming a deed or transferring a title to a family member or friend. This type of transfer is considered a fraudulent conveyance, because it was made with the intent of hiding belongings or assets from creditors. The transfer shows an intent to hinder, delay, or defraud creditors, and can be undone by a bankruptcy trustee. Fraudulent conveyance is a civil cause of action that can be brought against the individual or business by a creditor or the trustee. Once the transfer is undone, the property can be sold for fair market value and funds distributed to creditors. 2

4 Additionally, transfers made without an actual intent to hide assets can still be undone by a fraudulent conveyance action. For example, if Jay sells his car valued at $4, to his friend Daniel for $500.00, the trustee can undo this transfer and attempt to sell the car for what it is worth. Jay s friend Daniel received the benefit of the car s value instead of the creditors that Jay owes. Jay did not intend to hide his car from creditors; however, he did not receive fair market value for the sale of his car and the transfer benefited his friend. In this situation, Daniel is considered an insider because he is Jay s friend. A family member who received this type of benefit would also be considered an insider. These types of conveyances can be undone and must be disclosed on your petition for bankruptcy if they occur within two years of filing a bankruptcy. The trustee looks at money transfers as well. Often, individuals attempt to pay off or pay down one particular creditor over another before filing. The trustee looks at any payments individuals made to creditors over $ within three months prior to filing a bankruptcy. The trustee can get back these funds and redistribute them equally to all creditors. Typically, this action does not affect the individual directly. Normally this would involve payments to unsecured creditors rather than payments you ve made on your car or home. Conversely, if an individual pays a family member or friend within one year of filing the bankruptcy, the trustee can get these funds back, which can harm relationships. Paying a family member or friend before filing a bankruptcy is called an insider preference, because an individual is preferring his family or friends over credit cards or hospital bills. For instance, Beth loaned her sister Dana $3, Dana was able to pay Beth the full loan amount six months prior to filing her bankruptcy. The bankruptcy trustee in Dana s case will be able to get the $3, back from Beth (and/or obtain a judgment against Beth to recover those funds), and will distribute the funds equally to all of Dana s other creditors. Ultimately, if an individual or business is insolvent (it has more liabilities than assets), it is always in your best interest to discuss your options with a bankruptcy professional before selling or transferring property or assets. Often, assets can be protected in the bankruptcy and an attorney can assist you with the best avenue to protect or sell your property. There are always exceptions and options available, which is why you should speak with an attorney. You can have relief from creditors without losing everything you have worked hard to acquire. 3

5 AVOID MISTAKE #2: KNOW WHAT YOU CAN AND CANNOT KEEP ARE YOUR ASSETS AT RISK? By Lori Lott Szathmary New clients often come into the office with the misguided belief that filing for bankruptcy is going to cause them to lose their house, their car, or other personal property that they would like to keep. Lots of people are scared away from even discussing the idea of bankruptcy because of this fear. Those that do opt to file the case may fear losing their stuff so much that they may fail to mention all their assets to their attorney. Don t fall into the trap of believing that you must continue to suffer through your financial crisis because you don t want to lose your property. Bankruptcy is designed to allow you to keep a certain amount of personal property. Most of the time, you can keep everything you own (including your house and car), provided that you have disclosed all of your assets to the Don t fall into the trap of believing that you must continue to suffer through your financial crisis so that you don t lose your property! 4

6 court. WHAT DOES THE BANKRUPTCY ESTATE INCLUDE? Filing for bankruptcy creates what is called a bankruptcy estate. Your bankruptcy estate is comprised of everything that you own at the time you file bankruptcy, whether the asset is tangible or intangible. When you file for bankruptcy, regardless of whether it is Chapter 7 or Chapter 13, you must prepare schedules where you list things you own such an real property, vehicles, cash, bank accounts, furniture, household goods, retirement accounts, and so on. These items would be considered tangible. Going further, you must even list claims that you might have against someone at the time that you file for bankruptcy. For example, if you have been injured in a car accident prior to filing bankruptcy but have not yet determined whether you should sue the party who caused your injury, you would still be required to list the potential lawsuit as an asset you own. This would be considered an intangible asset. Any asset or property that you inherit within 180 days of filing the case is also part of your bankruptcy estate. Failure to list an item that you own could cause you to lose your interest in that asset. It is very important that you make certain to list every asset that you have an interest in. TANGIBLE ASSETS May include: -Real estate -Vehicles -Cash & Bank Accounts -Furniture & Household Goods -Retirement accounts And more INTANGIBLE ASSETS May include: -Potential lawsuits you may have against someone else -Any asset you inherit within 180 days of filing bankruptcy -Copyrights and patents SO WHAT CAN I KEEP? Everyone is entitled to certain exemptions to protect their personal property. The laws of the state where you have been living for the last two and a half years prior to filing your bankruptcy are the laws that will apply for purposes of claiming exemptions. If you have lived in more than one state, your attorney will need to discuss with you which state s exemptions will 5

7 apply (or whether federal exemptions apply) and what that might mean to your case. Keep in mind that if your property is subject to a lien from a creditor, such as a mortgage, then you only need enough exemption to protect your equity in the property which is the amount left over after the amount of the mortgage or lien is deducted from the property s value. WHAT YOU CAN EXEMPT FROM YOUR BANKRUPTCY ESTATE IN TENNESSEE Tennessee law allows you to protect $5,000 of equity in your real property if you are single ($25,000 if you are a single parent), or $7,500 of equity in real property if you are married ($50,000 if you are married with children). Different exemptions apply if you are over the age of 62. Furthermore, Tennessee allows you to protect up to $10,000 of personal property (items such as furniture, money in bank accounts, equity in vehicles, jewelry, etc.). Also, your retirement accounts can typically be protected 100%. There are numerous exemptions under Tennessee law that allow you to keep your property. Most of the time, bankruptcy cases are considered no asset cases because all of your assets can be exempted. It always helps to consult with a knowledgeable attorney who can give you your options about keeping your property when filing bankruptcy but still getting the relief from your creditors that bankruptcy provides. Knowing what you can exempt from your bankruptcy can be tricky. Remember these 2 things: 1) always disclose everything you own in your Bankruptcy petition, and 2) talk to an experienced attorney about the best way to protect your belongings BEFORE you file for bankruptcy! 6

8 AVOID MISTAKE #3: KNOW WHAT TO DO WITH YOUR BIG TAX REFUND BEFORE BANKRUPTCY IF YOU GET A BIG TAX REFUND BEFORE FILING BANKRUPTCY, THAT S OK READ ON TO KNOW HOW TO SPEND IT! By Dan Castagna Many of my clients wind up getting large tax refunds after they file their taxes. These refunds can add up to thousands of dollars. Someone who is contemplating filing bankruptcy may be under the misimpression that they cannot keep their tax refund because it may be too much. It is often the case that people in debt normally turn to their friends and family in times of their financial distress. As a result, many people feel a moral obligation to repay a family member who has helped them in the past. Without consulting an attorney, they make the mistake of giving their tax refund away to family members or friends to whom they owe money. People who are planning to file bankruptcy do not realize that, by repaying that gift from a family member or friend with their tax refund, there may be some negative consequences. 1) Repaying friends or family with tax refunds may prevent the individual from receiving a discharge in a Chapter 7, or 2) Repaying friends or family may pull the family member or friend who received money from the bankrupt individual into some sort of potential lawsuit inside the bankruptcy. 7

9 Obviously, those are not positive outcomes for your finances or for your relationships with your friends or family, which is why you must be very careful spending your tax refunds. If you pay back a friend or family member with your tax refund right before filing bankruptcy, a bankruptcy Trustee may deem that payment a preferential payment and could even sue your friend or family member for return of those payments! When a person files for bankruptcy relief, they are allowed certain exemptions. An exemption basically indicates the type and amount of property that your creditors (and the bankruptcy estate) cannot take from you. In essence, it is the property that you get to keep or the amount of equity you get to keep in your property. The types of exemptions you are allowed to claim vary depending on where you lived prior to filing for bankruptcy protection. As a general rule, if you have lived in Tennessee for the past two years you would be entitled to claim Tennessee state exemptions. Under Tennessee law, an individual is entitled to claim an exemption of $10, in personal property. This type of property includes your tax refund! This means that a married couple can claim up to $20, in exemptions for their personal property - which includes a tax refund. Thus, many times, you are able to protect, or shield your tax refund from the bankruptcy Trustee and are allowed to keep it. Once the exemption is allowed and the case proceeds to a certain point, you can than do whatever you choose with that tax refund and the bankruptcy has no effect on it. The problem many people face is giving friends or family members a portion of their tax refund before filing bankruptcy. The bankruptcy petition states that you must disclose any payments you make to a creditor that in the aggregate total more than $ in the 90 days prior to filing for bankruptcy protection. Thus, if you owe a family member or friend money and pay them back with your tax refund before you file bankruptcy, you must list this 8

10 transfer on your petition. If these payments are deemed to be preferential payments by the Trustee then the Trustee can sue your family member or friend for a return of those payments. The petition also requires someone who files bankruptcy to list gifts given to family members if the aggregate of the gift is more than $ within a year of filing. In addition, the petition also requires you to list all property that you transferred within two years of filing the bankruptcy. Thus, if you gift your tax refund (or a portion of your refund) to a member of your family or transfer your refund to a friend or family member, the transfer can be set aside by the Trustee and your family member or friend could be required to turn the money over to the Trustee because it may be deemed a preferential transfer or a fraudulent conveyance. If it is not turned over to the Trustee, your family member or friend could be sued by the Trustee and forced to defend a lawsuit. It is imperative that you speak with a competent attorney before transferring any portion of your tax refund. There are many pitfalls that may be preventable with the right legal advice prior to filing. Many times, the simplest solution is to just hang onto your tax refund until after you file your bankruptcy case. If you are thinking of filing bankruptcy, before you do anything with your tax refund, consult an attorney to avoid any pitfalls. If you are expecting a large tax refund and are considering bankruptcy in the near future, call an attorney for advice before transferring any portion of your tax refund! 9

11 AVOID MISTAKE #4: KNOW WHICH DEBTS CAN BE DISCHARGED CAN YOU GET RID OF STUDENT LOANS? By Rodney Caldwell Filing a bankruptcy normally takes away the stress and anxiety associated with being in debt; however, a bankruptcy discharge does not take away your responsibility to repay all the debt you have listed in your bankruptcy petition. This article will give you a brief overview of one of the most common debts which you will normally still owe if you file for bankruptcy relief: Student Loans. Student Loans are typically the most common type of debt which are not subject to being discharged. A bankruptcy discharge is a court order that prohibits creditors from personally collecting on the debts listed on your bankruptcy petition. The Bankruptcy Code defines student loans as: An educational benefit, overpayment or loan made, insured or guaranteed by a governmental unit, or made or funded in whole or part by a governmental unit or nonprofit institution, or an obligation to repay funds received as an educational benefit, scholarship, or stipend, or any other educational loan that is a qualified loan, as defined in section 221(d)(1) of the Internal Revenue Code of Therefore, Congress has stated any loan used solely as an educational loan, whether from the government, a nonprofit institution, or a private lender will not be discharged if you file a bankruptcy. This exception to discharge has one caveat which allows the debt to be discharged if a person who filed for bankruptcy relief can show that the repayment of the 10

12 student loan debt is an undue hardship. You should consult with an experienced bankruptcy attorney to see if you could potentially meet the qualifications to have the debt discharged because the student loan repayment creates an undue hardship. In extremely rare occasions, student loans can be discharged with a showing of undue hardship. In order to obtain a hardship discharge of the loan, the debtor must file a lawsuit and prove that there is no way that they will ever be able to repay the loan. Hardship discharges are ordinarily granted only in cases of extreme disability, wherein earning potential is completely diminished. Congress has also carved out exceptions to other debts which cannot be discharged in a bankruptcy. It is important to know that certain types of debts are considered nondischargeable (you will still owe them after your discharge in Bankruptcy). DEBTS THAT MAY NOT BE ABLE TO BE DISCHARGED (WIPED OUT) IN A CHAPTER 7 MAY INCLUDE: Student loans Certain tax debt (ask your attorney some older tax debt may actually be dischargeable) Alimony and child support Civil and criminal fines payable to a governmental unit Debts brought about as a result of driving a vehicle under the influence of alcohol or drugs Debts which are related to fraud, false representation, or willful and malicious injury to another person or property Even if you cannot discharge the debts listed above with Chapter 7, you may consider a Chapter 13 to repay those nondischargeable debts, in part or in full, at a rate you can afford. (For more on Chapter 13, visit Or, you may still wish to file a Chapter 7 to get rid of your other debt so you can focus on paying the nondischargeable items like student loans. Make sure you fully disclose all of your debts and the circumstances surrounding incurring your debts when you consult with your bankruptcy attorney to ensure that you are fully informed on what you can discharge when you file for bankruptcy relief. 11

13 AVOID MISTAKE #5: UNDERSTAND WHICH CHAPTER YOU QUALIFY FOR AND WHEN! IF YOU FILED BANKRUPTCY IN THE PAST, YOU CAN FILE AGAIN! By Bryan Penland You may have filed for bankruptcy in the past and find yourself in a situation where you may need to file again. Is this possible? The short answer is: YES! In most instances, a person can file another bankruptcy case even if they have filed before. Why would someone need to file again? There can be many reasons, including: medical issues that result in new and overwhelming debts or reduced household income due to loss of employment or separation from a spouse. Filing for bankruptcy again is sometimes necessary to provide protection from overwhelming and burdensome debts. The automatic stay is an injunction (a court order) that prevents creditors from continuing to collect on a debt through means such as foreclosure, repossession, garnishments of wages, and lawsuits to collect a debt. The automatic stay is usually available to prevent these collection activities, even if the person has filed before. There are some instances where a repeat bankruptcy filer would not have the automatic stay to protect them, but the majority of repeat filers would be able to stop collection activity by re-filing for bankruptcy relief. In some circumstances, a person who files another bankruptcy within a short period of time cannot receive a discharge in that follow up case. To receive a discharge of a debt in 12

14 bankruptcy means to extinguish the legal liability to pay that debt. Some debts such as student loans, child support or alimony, criminal fines and certain tax debts cannot be discharged in any bankruptcy, whether it is your first or fifth bankruptcy filing. Why would you want to file for bankruptcy if you cannot discharge your debts? Isn t that the point of bankruptcy? Sometimes it makes sense to file again even if you won t receive a discharge in the case, especially if, by filing, you can keep your house safe from foreclosure, avoid repossession of your car, or stop a garnishment. Chapter 13 can provide a 5-year safe haven to keep your property, like a house or a car, while you make your payments through the Chapter 13 program, even though a discharge of your debts is not available. The decision to file another bankruptcy, especially within a short period of time from a prior filing, is a serious decision that requires careful analysis and sound advice from a competent bankruptcy attorney. Our offices have 7 consumer bankruptcy attorneys in 3 offices in Middle Tennessee that are up to the task. Contact us now if you have any questions about filing bankruptcy again. If you have filed bankruptcy in the past, you can file another case! Don t make the mistake of thinking that you don t qualify again. Check with a bankruptcy attorney to know the options that are available to you to keep your creditors at bay! 13

15 AVOID MISTAKE #6: DON T WAIT TOO LONG TO TAKE ACTION! TALK TO AN ATTORNEY TO DISCUSS YOUR OPTIONS - YOU DON T HAVE TO DO THIS ALONE! By Dan Castagna On average, people take several months to decide whether or not to file for bankruptcy. During this time, they are still juggling their bills. Unfortunately, when stressed out due to looming financial problems, people make mistakes. They think that if they can just take care of some of the smaller credit cards, then they will be able to manage their house and car payments. In order to do this, they make the credit card payments instead of making the house or car payment. Do not do this! Many people try to manage their debts by taking a line of credit or second mortgage or by emptying a retirement account to pay off credit cards or loans. It is generally a bad idea to turn unsecured debt into secured debt. Further, this may only be a temporary fix and you could end up having to file for bankruptcy later anyway. Stop robbing Peter to pay Paul. You should speak with an attorney so that you can make an informed decision on which route is best for you. The consultation is free. If you are facing a possible foreclosure, repossession and/or lawsuit, then you should talk to one of our bankruptcy attorneys right away. The longer you wait, the greater the chance that you could lose money or other assets due to either paying the wrong creditors or due to garnishments, foreclosures or repossessions. It is important to not wait until you have judgments pending against you. As soon as you are threatened, you should contact us for help. 14

16 If you wait until the last minute, then it may be too late to stop a foreclosure, repossession or judgment from being entered. Once a foreclosure sale occurs, it cannot be undone in a bankruptcy. Once there is a judgment entered, it is on your credit record. A judgment could also attach to your assets and could remain attached even after a bankruptcy. Talk with an attorney before you sign up for debt management and other credit repair companies. You need to understand how these companies work in order to protect yourself and not make a bad situation worse. Do not file a bankruptcy on your own or with the help of a friend. The bankruptcy code is complex and the slightest mistake could get your case dismissed. Also, you want to make sure that bankruptcy is the right choice. We can help and offer a free consultation. Money Problems Ignoring the issue can cost you time and money. Seek legal help as soon as you know there is a problem! 15

17 HOW DO I AVOID MAKING THESE MISTAKES? In this report, we ve given you some valuable tips to avoid losing money, time, and even relationships as you prepare to file for bankruptcy. If you still have questions or want us to look at your financial situation in detail, please give us a call. We have seven attorneys on staff dedicated to helping people navigate the bankruptcy process. The first consultation is always free of charge. We know that filing for bankruptcy is a big decision, and we want you to be well equipped with the knowledge and legal advice you need before you make that decision. Call us at or freeinfo@flexerlaw.com to get more information. We d love to hear from you and see how we can help you. Sincerely, -James Flexer James Flexer Owner, Flexer Law 3 Locations in Middle Tennessee to Serve You: NASHVILLE MURFREESBORO COLUMBIA Easy access to I-65 & I-40 with free parking: 1900 Church Street, Suite B Nashville, TN On the Square in Murfreesboro: 105 N. Maple St., Suite B Murfreesboro, TN Online at flexerlaw.com On the Square in Columbia: 13 Public Square Columbia, TN

18 ABOUT THE ATTORNEYS: James Flexer started his firm in 1981 in downtown Nashville. The company has now grown to 9 attorneys in 3 offices in Middle Tennessee. James is a Nashville native and is always happy to share tidbits of local trivia just ask him! Dan Castagna is the managing bankruptcy attorney in the Nashville office and has been practicing bankruptcy law since Dan graduated from Vanderbilt University, but is originally from Queens, New York and has the accent to prove it. Bryan Penland is the managing bankruptcy attorney in the Columbia office and has been practicing bankruptcy law since Bryan played baseball in college and now enjoys coaching his son s travel baseball team. Lori Lott Szathmary has been practicing bankruptcy law since 2009 and appears on behalf of our Chapter 13 clients at their Meetings of Creditors. Lori spends her free time chasing her 100 lb dog and her 10 month old baby girl around the house. Rodney Caldwell started his law career with the Metropolitan Public Defender s office but has been practicing bankruptcy law since Rodney is not afraid to stand up to creditors but he will admit he is terrified of spiders. You ll recognize Rodney at court because he is always sporting a bow tie! Michelle Spezia has been practicing bankruptcy law since In addition to consumer bankruptcies, she also specializes in Chapter 7 bankruptcies for small businesses. Michelle is a classically-trained pianist and has been playing since age 4. 17