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Mistakes to Avoid

Be Careful, Plan Ahead.

There are Things You Should Not Do Before Filing Bankruptcy

Here is a list of common mistakes made by consumers prior to filing bankruptcy. These mistakes can results in significant financial detriment.  Please take the time now to learn what not to do before filing bankruptcy:

1. DO NOT TRANSFER PROPERTY OUT OF YOUR NAME!

Some people transfer property out of their names just prior to filing bankruptcy on the incorrect belief that if they do not own the property at the time of filing, the trustee will be unable to take it from them. This is not true. The trustee has a legal obligation to recover from the the person who received the property. Gifts to friends or relatives may be treated this way as well. Do not transfer property without receiving legal advice if you are contemplating a bankruptcy filing.

2. DO NOT REPAY A RELATIVE OR AN INSIDER!

In the eyes of the law, a relative creditor has no special legal status. Relatives and insiders are not to be treated any differently than other creditors within the same class. For example, if you receive a tax refund just prior to filing and give it all to your mother (or other relative) in repayment of a debt, the trustee can be expected to pursue your mother (or other relative) to recover the money received and disburse it to all same-class creditors. Do not repay any debts to friends or relatives prior to filing a bankruptcy case. Insiders are friends, business partners, or other creditors with whom you have a special relationship.

Stop using credit cards3. DO NOT INCUR DEBT OR MAKE CHARGES YOU DO NOT INTEND TO REPAY!

Once you have made the decision to file bankruptcy, you should not incur additional debt that you do not intend to repay in contemplation of the bankruptcy. In fact, it may be a crime. So, do not use your credit cards or incur debt you do not intend to repay once you have made your decision to file bankruptcy.  You could lose the right to cancel the debt in bankruptcy, or worse.

4. DO NOT PULL MONEY FROM YOUR RETIREMENT ACCOUNT UNLESS YOU ABSOLUTELY MUST!

Funds in retirement accounts are generally well-protected in bankruptcy.  It is likely that you may be able to discharge debt in bankruptcy without giving up any of your retirement account funds, so do not take money out of retirement accounts to pay debts. You will need your retirement accounts once you retire.

5. DO NOT INCUR DEBT AGAINST A LINE OF CREDIT OR TAKE OUT A SECOND MORTGAGE TO PAY DEBT!

Do not establish or incur debt with a line of credit secured save your homeby your home or take out a second mortgage to pay debt without receiving legal advice regarding your financial situation and the bankruptcy statutes. Some people believe that they must eliminate the equity in their homes in order to discharge debt in bankruptcy.  This is not true in many cases. You make be putting your home at risk by increasing your mortgage debt. Consult with your attorney before you take these kind of steps.

 

6. DO NOT ALLOW CREDITORS TO OBTAIN JUDGMENTS AGAINST YOU!

If there’s a collection case pending against you in state or federal court, don’t assume that you can avoid the court process simply because you’ve decided to file bankruptcy. Until your bankruptcy case is filed, a collection case continues and a judgment lien may be used to seize wages, bank accounts.  Judgment liens can also be attached to real estate that you own.

7. FAILURE TO TELL YOUR ATTORNEY THE COMPLETE TRUTH IS AN EXPENSIVE MISTAKE

Your attorney is your advocate. Your attorney can only provide advice based upon information provided by you.  Failure to fully disclose your financial condition to your attorney can lead to the loss of assets, denial of your bankruptcy case, fines, imprisonment, or all of the above.

Full Disclosure

The bankruptcy statute requires a full and open disclosure of your income, your assets, your debts, your creditors and several years of your financial history preceding the bankruptcy filing.

You may not keep certain assets “out of your bankruptcy.”  You must list the things you own and then you can propose how your assets will be treated through the bankruptcy.  Failure to disclose important facts regarding your possessions, your debts and your financial can lead to dismissal of your bankruptcy case.  Deliberate attempts to provide misleading information to the bankruptcy court could expose you to civil and criminal fines and prosecution.

Automatic Payments, Billing Issues and Banking

All of the creditors in the bankruptcy filing will receive notice of the bankruptcy shortly after the case is filed.  Most creditors will stop billing you and taking automatic payments from your account once they receive notice of the filing.  If you have an item that you want to keep that is paid by the creditor automatically pulling the payment from your account you may need to work with your bank to automatically push that payment to the creditor on the item you want to keep.   You can also simply continuing making the payments on items you want to keep by sending a payment each month by mail, but that lead to another problem:

Most of the creditors will stop sending bills to you once they receive notice of the bankruptcy filing.  This can be a problem if you want to continue the payment on an item you want to keep and you are in the habit of sending the payment shortly after you receive the billing.  In this situation you may need to mark your calendar and use an old billing statement with the account number and mailing address in order to keep making the payments on items that you want to keep.  You should not stop making payments on items that you want to keep unless the attorney advises you specifically to stop the payments for some reason.

Some banks and credit unions will react to a bankruptcy filing by closing your account.  This is a common practice for credit unions when they take a loss on a loan or credit card account.  Banks and credit unions will sometimes take the unusual step of freezing accounts and requesting the Trustee or the Court’s direction to allow a person to access the funds in bank accounts.

The filing of a bankruptcy is a significant financial event, it can provide financial relief but it is not an effortless process.  Weinberg & Ziegler, PLLC will work with you through the filing and bankruptcy process to reduce the impact on your life.

Here is a handout that you receive when you come in to sign your bankruptcy documents.  This handout has a lot of basic information about types of bankruptcy, bankruptcy discharge, reaffirmations and more.

When is an old debt too old to be the basis for collection activity against you?

The Federal Trade Commission has a handout that explains Time-Barred Debt.
You can review that handout here.

The statute of limitations in Washington State law is in Chapter 4.16 of the Revised Code of Washington.  The collections statute set by RCW 4.16.040 is six years for the limited class of actions described in that specific subsection.

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 We are a debt relief agency.

We help people file for bankruptcy relief under the bankruptcy code.