Bankruptcy is a strong software that may as soon as and for all remove your debt issues. And while chapter is quite a bit much less painful than most think about, there are specific pitfalls that can make the process an entire lot more difficult. In this publish I am going to discuss 13 pitfalls of bankruptcy – most of which could be prevented with just a little planning.
Right here we go…
- 1 #1 – Money in Your Financial institution Account
- 2 #2 – Cash Advances on Your Credit score Card
- 3 #3 – Luxury Purchases
- 4 #4 – Funds to Buddies and Family within 1 Yr Previous to Your Bankruptcy Filing
- 5 #5 – Funds to Unsecured Collectors inside 90 Days Prior to Your Bankruptcy Filing
- 6 #6 – Sale of Property for Less than Market Worth
- 7 #7 – Non-Homestead Real Property
- 8 #eight – Actual Property Outdoors the State of Arizona
- 9 #9 – HOA Fees Incurred After the Submitting of the Bankruptcy Case
- 10 #10 – Inheritance Within 6 Months After Submitting for Bankruptcy
- 11 #11 – Personal Damage Claims
- 12 #12 – Tax Refunds
- 13 #13 – Wages which might be Earned, However Not Paid Prior to Bankruptcy
- 14 Be Cautious Out There!
#1 – Money in Your Financial institution Account
On the day that your bankruptcy case is filed Arizona exemption regulation only permits you to have $300 complete amongst all of your checking/saving accounts ($600 for married couples). When you have more than $300/$600 amongst your bank accounts on the day your chapter is filed then you’ll be required to show over those extra funds to your chapter trustee who will then distribute the money to your collectors.
It is very important perceive that this solely applies to the cash in your bank account on the day your case is filed. After the chapter is filed you possibly can then proceed to make use of your case as you probably did prior to your chapter filing.
With somewhat planning you’ll be able to keep away from having to turn any further funds over to the chapter trustee. Listed here are the Arizona Shopper Regulation Group we assist shoppers plan out when their case will probably be filed and keep away from submitting when there are giant sums of cash in the account, for example on pay day.
Pro Tip: It is very important perceive that you simply can’t simply withdraw cash from your account, file your bankruptcy, after which re-deposit the money again into your bank account after your case is filed. The $300/$600 restrict applies to complete cash available, whether it is in your bank account or at house underneath the mattress. When you’ve got more than the exempt restrict it is very important work together with your bankruptcy lawyer to plan how these funds could be spent down prior to your submitting.
#2 – Cash Advances on Your Credit score Card
Once you make the choice to file for chapter you need to cease utilizing your bank cards. Should you take out a money advance in your credit card within seventy (70) days previous to the filing of your chapter the regulation imposes a presumption that the debt associated with the withdrawal does not go away.
For instance, should you take a cash advance of $1,000 on your credit card thirty (30) days prior to the filing of your chapter there is a presumption that the $1,000 cash advance won’t be eradicated together with your other debts in your chapter case.
Nevertheless, although I don’t advocate you’re taking a cash advance additionally it is essential to notice that the bank card company can be required to return into your bankruptcy case and file paperwork with the courtroom requesting that an order be entered stating that the $1,000 was not eliminated in your bankruptcy.
If the credit card firm doesn’t do this, the debt goes away with all of the others.
#3 – Luxury Purchases
The Bankruptcy Code additionally states that for those who use your credit cards to buy “luxury items” inside ninety (90) days of your chapter submitting that there’s a presumption that these debts don’t go away. What does the chapter courtroom think about a luxury merchandise? The Bankruptcy Code doesn’t inform us exactly what constitutes a luxurious merchandise, but courts have rendered selections that state that issues like groceries and fuel in your automotive usually are not luxurious gadgets and can be eradicated identical to some other debt.
Also, like the example above on money advances the bank card company should come into your bankruptcy and make an appearance and file a proper objection to these specific fees. In the event that they don’t do this the money owed are eradicated.
#4 – Funds to Buddies and Family within 1 Yr Previous to Your Bankruptcy Filing
I’ve found that when individuals file for chapter they typically feel horrible that they aren’t capable of pay again all of their money owed – particularly when the individual they owe is an in depth good friend or family member. As a result of of this I am typically requested if it is okay to pay the member of the family or good friend (also called an “insider” in the chapter world) before the chapter is filed. That means you don’t need to really feel like an fool at next yr’s Thanksgiving dinner because you included the debt to your brother in your chapter case.
The issue is, should you owe cash to an “insider” and make funds on the debt in the yr main as much as your bankruptcy filing, these funds are thought-about a “preference” and might be recovered by the bankruptcy trustee.
For instance, let’s say you owe your brother $10,000 and you’ve got been religiously making monthly payments to your brother of $300 for the final yr. Because you are related your brother is taken into account an “insider” and all of the funds you made on the debt you owe your brother might be recovered by the chapter trustee. They will literally ask your brother to turn all of that cash over to the trustee after which the trustee will take the funds and disburse them to your creditors.
What if your brother gained’t turn over the cash? They sue him – making that next family reunion super awkward.
Most chapter trustees in Arizona offers you a chance to pay the money to the trustee in order that they don’t should hassle your brother in this instance, nevertheless the better route to go is that if you realize chances are you’ll have to file for bankruptcy to cease making funds to any insider.
#5 – Funds to Unsecured Collectors inside 90 Days Prior to Your Bankruptcy Filing
Just like the rule above, should you pay an unsecured creditor inside the 90 days prior to the filing of your chapter case the bankruptcy trustee can contact the creditor and ask for the cash again. Then, once they have the cash, they may distribute it out to creditors evenly.
For instance, let’s say that inside 90 days prior to filing for chapter you pay a photographer for the wedding footage they took of your wedding ceremony. The bankruptcy trustee can go and demand that these funds be paid again to the bankruptcy property after which distributed to all of your creditors.
For many people this isn’t as awkward because the recovery of cash paid to an insider as you don’t have the connection to worry about with a basic creditor that you’ve with your loved ones members or buddies. Nevertheless, if you wish to proceed to do enterprise with the photographer mentioned above, you would wish to determine a option to get this quantity paid so that they don’t have handy over the money you paid them.
#6 – Sale of Property for Less than Market Worth
Typically individuals assume they will recreation the system by transferring their belongings out of their identify prior to the filing of their chapter. However…it isn’t that straightforward. Hundreds of thousands of individuals have filed for chapter and the courts and chapter trustees know all of the tips. And the regulation prevents you from transferring your belongings out of your identify and then submitting for chapter (at the least it prevents you from getting away with it).
In case you sell something prior to the filing of your chapter case you will need to sell it for about what it’s value. For example, let’s say you’ve gotten a ship that’s value about $5,000 and need to sell it prior to submitting for chapter. When you have been to promote it in a reliable sale for $four,800 and title truly transferred then there wouldn’t be an issue with you filing for chapter.
Nevertheless, when you bought that very same boat for $200 – far lower than what it’s value – then the chapter trustee might return and void that sale, get the boat again, sell it for what it is value, and give that money to your collectors.
In case you are considering of submitting for chapter and are needing to promote something, ask your lawyer first, after which ensure you sell it for what it’s value and that cash truly modifications arms.
#7 – Non-Homestead Real Property
In Arizona the homestead exemption protects as much as $150,000 in fairness in your house. Nevertheless, when you’ve got a cabin, rental, or some other type of actual estate in your identify, and if that property has any equity in it, then there isn’t any homestead exemption and the bankruptcy trustee will step in and sell the property, paying off any liens on the property and then taking the cash and paying it out to your different creditors.
In case you have actual property that isn’t your private residence, and you’ve got equity in it, then chances are you’ll need to take a look at a chapter 13 bankruptcy and for positive talk about this example together with your lawyer.
#eight – Actual Property Outdoors the State of Arizona
As referenced above, the homestead exemption in Arizona is $150,000. In order for your property to be protected beneath the homestead exemption you should make the most of the property as your property and the property have to be situated in the state of Arizona. In the event you personal a cabin in southern Utah or a rental on the seashore in California you’ll not have any homestead safety in those properties and would lose them in a bankruptcy.
#9 – HOA Fees Incurred After the Submitting of the Bankruptcy Case
In Arizona home-owner’s associations have an enormous quantity of energy (too much for those who ask me). If you don’t pay your HOA assessments after your chapter case is filed these costs don’t go away and your HOA will be capable of pursue you – and in most instances lien your property – when you don’t get them paid.
Pro Tip: HOA fees that you’ve previous to your chapter can be eradicated until the HOA has a lien on your property. If the HOA has secured a lien towards your house then the debt is considered secured and won’t be eradicated in your chapter case.
#10 – Inheritance Within 6 Months After Submitting for Bankruptcy
In a chapter 7 chapter the revenue you obtain after your case is filed is essentially irrelevant to the bankruptcy courtroom. Nevertheless, for those who develop into entitled to an inheritance inside 180 days (approximately 6 months) after your bankruptcy case is filed, you have to notified your lawyer and the chapter trustee and your inheritance can then be seized to pay your creditors.
It is very important perceive that the regulation states that for those who grow to be entitled to an inheritance within 180 days, not that you’ve acquired an inheritance inside 180 days. Which means if you understand you’re listed in somebody’s will and can receive an inheritance upon their dying, and then they do die, you develop into entitled to the inheritance upon their dying, regardless that you gained’t obtain the inherited property until later.
#11 – Personal Damage Claims
If previous to the filing of your bankruptcy you’re injured and turn into entitled to a settlement or payout resulting from your injuries, these funds could be seized by your chapter trustee if they are acquired after your chapter case is filed.
It is very important let your bankruptcy lawyer know in case you have been in an accident or anticipate some sort of settlement or payout in order that your lawyer can properly advise you as to when your chapter case must be filed. Typically it’s better to attend until the private damage claim has been settled and paid before leaping into a bankruptcy case.
#12 – Tax Refunds
When you file a chapter 7 bankruptcy you’ll doubtless lose part or all of your tax refund. Should you file a chapter 13 bankruptcy there’s a good probability you’ll lose your tax refunds for the years your case is pending (often 5 years).
Chapter 7 & Tax Refunds – How a lot you’ll lose of your tax refund should you file for chapter 7 bankruptcy will rely upon what time of yr you file your case. Listed here are a couple of tips on what you’ll be able to anticipate should you file your chapter throughout the following months:
- January – April: For those who file chapter through the first half of the yr it’s best when you file your tax return first, get hold of your refund, after which use it prior to submitting your bankruptcy case. Speak together with your lawyer about applicable things you possibly can spend it on. In case you file for bankruptcy, after which receive your tax refund you’ll be required to show over your complete refund for distribution to your creditors.
- Might – December: When you file your chapter after April and anytime up via December you may be required to turn over a portion of the tax refund you obtain the following yr. The amount you pay can be based mostly upon the month of the yr you file in. For instance, should you file for bankruptcy in July, then the next yr you’d be required to pay 7/12 (or about 58%) of your tax refund to your collectors – it’s because you filed in the seventh month (July) of the yr. Here is an easy cost to provide you an estimate of how a lot of your tax refund you’ll have to flip over based mostly upon the month you file your chapter case:
Chapter 13 & Tax Refunds – A chapter 13 bankruptcy is a unique beast altogether. The standard chapter 13 case final 3 to 5 years in length. During that time period the bankruptcy trustee is going to offer you two options relating to tax refunds. First, you possibly can regulate your with holdings in your paycheck so that you simply maintain more of your pay and thus scale back your possibilities of getting a big tax refund (click HERE to learn how to seek out out what your tax with holdings ought to be). For those who change your withholdings you shouldn’t have to turn over tax refunds you receive.
An alternate is to keep your withholdings the place they are after which in the event you get a tax refund annually you possibly can flip it over to the chapter 13 trustee for distribution to your creditors.
#13 – Wages which might be Earned, However Not Paid Prior to Bankruptcy
This final one is a sneaky method some chapter trustees attempt to come after further money in your creditors. When you’ve got earned pay however don’t receive it till after your chapter 7 chapter case has been filed, some chapter trustees in Arizona will make a requirement that you simply flip over 25% of those funds acquired after your chapter case was filed.
This one is somewhat confusing, so let me give you an example – let’s say you had finished a job earlier than you filed for bankruptcy and had earned your pay in full. Let’s say the agreed upon wage was $1,000. Nevertheless, your employer doesn’t pay you the $1,000 for a pair of weeks l – after you’ve got filed for bankruptcy. Sometimes money you’re paid after filing for chapter isn’t half of your case and the trustee can’t come after it.
Nevertheless, the trustees in Arizona make the argument that in the event you earned the money earlier than you filed, however weren’t paid until after submitting, then they will nonetheless come after it as a result of it was technically earned previous to the filing of your bankruptcy case.
It is very important notice that 75% of wages in Arizona are exempt. Which means even if the trustee is coming after earned but unpaid wages, the trustee can only come after 25% of these wages.
The most typical state of affairs I run into with this one is with real property agents. Typical state of affairs goes like this – real estate agent has executed all the things vital to finish the sale of a house however the fee hasn’t been paid but because the home hasn’t closed yet. In a state of affairs like that the chapter trustee would be capable of make a claim to 25% of the commission for distribution to your creditors.
The easiest way to work round that is when you have a large commission examine coming or paycheck, then it might be greatest to attend until the fee is paid and spent prior to filing for chapter.
Be Cautious Out There!
The point of this article is that will help you avoid some of the grief that may come together with a shopper bankruptcy case. Many (if not all) of these pitfalls may be prevented with somewhat planning and the help of a superb bankruptcy lawyer. The problems typically hit the unweary the toughest resulting in a very painful bankruptcy expertise.
In case you are in need of help submitting for bankruptcy give us a name. I supply a free session and am joyful to walk you thru the bankruptcy process and go over your options – John Skiba, Arizona Shopper Regulation Group, (480) 420-4028.
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