How to Plan and Survive a Pending Personal Financial Disaster
ONE YEAR OUT PRIOR TO FILING do not think you can outsmart the creditors and the Court by transferring your assets to another person or relative. If you quitclaim your house to your Aunt while owing a bunch of money to everyone else, the house will be taken from the Aunt and brought back into the bankruptcy estate by the Court. Don’t marry somebody with high income who isn’t filing. Be aware that key items not dischargeable in bankruptcy are student loans and the majority of income taxes. You will have to work out a payment plan with them no matter what happens.
SIX MONTHS OUT PRIOR TO FILING look at what you owe. If you owe less than $30,000 in credit card debt you may want to try Consumer Credit Counseling Service to come up with a payment plan to work your way out instead of filing bankruptcy. Be aware there are very few private debt consolidation companies that actually completely get you out of debt. If you have major tax problems try a reputable local tax attorney not some person you saw on TV or the internet.
FOUR MONTHS OUT PRIOR TO FILING bankruptcy sit down with your family and make some hard decisions. Do not take out loans from your 401(k) or liquidate your IRA’s just to pay the credit card companies. You will regret this the rest of your life. You will still probably end up filing bankruptcy and now you potentially have a tax debt to the IRS. Do not take out a home equity loan to pay off the credit card companies. Bill consolidation loans can potentially force you to lose your house even filing bankruptcy by making your mortgage payment too high for you to make after the case is filed. If you are out of work or have been layed off, the priority is to provide food and shelter for you family and survive the financial hailstorm. Prioritize the assets you want to keep. Make the payments on the assets you need to survive. If you have multiple automobiles only pay on those you need to keep to survive. If you have an extremely high mortgage then decide if it is better to sell the house and get something smaller. If your house is not appreciating and you cannot make the mortgage payments, then decide if it is better to let the house go and lease something else down the road. If you are being foreclosed on and know you can’t keep the house, don’t pay the mortgage and stay in the house until the last possible day and save your cash to survive. Sometimes the actual foreclosure may be months away. Yes, you can save a house in Chapter 13 by repaying the missed payments the lender will tell you. The reality is that unless you can make the regular monthly payment and pay part of the old payments back each month you will probably still lose the house if you are behind more than 60 days after filing. Bankruptcy courts are full of mortgage companies each week filing to foreclose on houses even with the filing of a bankruptcy petition. Don’t believe the short sale myth. Very few of these actually happen. By the time your first and second mortgage companies agree to accept less than what they are owed and the buyer actually is approved you may be in foreclosure. It takes a very aggressive real estate agent to make this happen with any luck in three to four months. The reality check here is that if you file bankruptcy or have a house that is foreclosed upon, you may not be able to get a mortgage again for several years after the case is over or the foreclosure takes place. It is smart to plan ahead on how you will keep a roof over your head. Don’t write yourself a loan with all of those convenience checks the credit cards companies send out. That can be potentially not dischargeable in bankruptcy. Never allow a collection agency to get the ability to debit your checking account.
90 DAYS PRIOR TO FILING a bankruptcy case stop using your credit cards. If you are using them to survive on don’t make the payments to the credit card companies and use the money to live on. Do not take out cash advances on a credit card 90 days prior to filing. Do not go out and buy items costing $1,000.00 or more prior to filing on your credit cards or open new loans. Don’t go out and buy a luxury car prior to filing completely on credit. Do not open new credit card accounts and transfer balances from other cards to that account. Do not pay your income taxes with a credit card 90 days prior to filing. Taking any of these actions prior to filing can make the debt potentially not dischargeable in a bankruptcy action.
30 DAYS PRIOR TO FILING start accumulating the following paperwork your attorney will need to file a petition.
- Run your credit reports. You are now allowed by law once a year to run your credit reports for free. On your computer go to www.annualcreditreport.com and request all three of your credit reports from Experian, Equifax, and Transunion. Type the site name in exactly or you will get one that will charge you. You do not need FICO score information.
- Find and copy six months of paycheck stubs for every person working in your household. It is required that a portion of these must be filed in the case.
- Find and copy your current Federal and State Income Tax Returns. You must produce the returns that as of the date of petition filing should have been filed with the IRS or State.
- Start putting together a list of assets you own. You need a list for checking and savings accounts, a list of the vehicles you own identified as to year and make, a list of retirement accounts, a list of investment accounts, and a list of household furniture, computers, cameras, and jewelry.
- Copy three months of your bank account statements.
- If you have been divorced in the last 5 years bring a copy of the divorce decree and the settlement agreement.
- Make copies of your vehicle titles.
- Bring a copy of any existing mortgages on your house.
- Fill out your attorney’s questionnaire.
- Take the credit counseling course required to file bankruptcy. A list of the companies offering the credit counseling is on a separate page. The average price is $50.00 and many offer the course online or by phone. You can’t file without having taken this class.
- Meet with your attorney to go through the Means test and determine your best course of action.