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Why Should I Hire an Attorney for Bankruptcy?

July 10, 2013 Leave a comment

You may be asking yourself, “Why do I need to hire an attorney to file bankruptcy?” You may also think, “I’ve done some research and I’ve seen the forms to fill out. It seems simple enough.”  The answer is: Bankruptcy isn’t as easy as a process as you may think. Time and again, we have people come to us telling us that they tried to file bankruptcy for themselves but their case was dismissed. In truth, the cost of fixing errors that are made in representing yourself can add up and you probably would have been better off having an attorney handle your case in the first place.

Representing yourself in a bankruptcy matter is referred to as filing pro se. Just like a traffic ticket, you are welcome to represent yourself in bankruptcy. However, as many people find out later (when it is too late), it is often necessary to have appropriate representation from an attorney with experience to make sure your interests are protected and you get the most favorable outcome available to you in the matter.

Last week, I saw a number of pro se cases that had problems when the petitioners came to their First Meeting of Creditors. This is a meeting where you are asked questions by the trustee of your bankruptcy to make sure everything in your petition is correct. Frequently, pro se filers make mistakes that require amendments to their petitions and coming back to attend future meetings. While it is not impossible for a mistake to be made in a petition filed by an attorney, the chances of having your bankruptcy go smoothly without any problems is a lot better if you have representation.

An attorney will know where your debts and assets need to be listed to prevent problems. Many times I will hear pro se filers say things like “I didn’t think I needed to list THAT.” Your attorney will be able to tell you what needs to be listed and what does not. Also, your attorney will be able to give you advice on when the best time to file will be. If a petition is filed too soon or too late, there may be debts that would have been discharged but will not be if the petition was filed at the wrong time. Finally, your attorney will know how to properly use the available exemptions to protect your property. This can become an issue if you have moved from one state to another within the last two years prior to filing. Some states provide for more property to be exempted from the bankruptcy estate than others. In some situations, the even more generous Federal exemptions may be available to a petitioner.

If you are considering bankruptcy and would like more information about your options, call our office and make an appointment to see one of our attorneys. We offer free consultations and you can discuss what chapter of bankruptcy will best suit your situation.

Dealing With Family Gifts and Loans

When filing bankruptcy, it is often easy to overlook personal loans and gifts. However, this type of debt or property may have a significant impact on your bankruptcy filing. Not disclosing information regarding real estate that has been gifted to you, an outstanding loan to a family member or co-owned bank accounts can cause some unexpected problems with your bankruptcy filing.

Listing All Assets

Regardless of the size of an asset, when you file for bankruptcy it must be listed. This includes any interests in real estate that you may own with another person, a bank account which is also listed under your name, or a pending income tax refund. Failure to leave these assets off your bankruptcy filing can result in problems with your filing. If you are not controlling the asset, you must still list them and can explain why you are not the true owner of the property. Often older parents put their children on their bank account in the case of an emergency so that the daughter or son can make financial decisions for their parents. Likewise, parents are often listed on the bank account of the minor child. Even though the debtors name is on a bank account and must be listed on the bankruptcy petition, it is not the debtor’s asset a trustee or creditors could take an interest in.

 

 

Debts to Family Members

Oftentimes when we are having difficulties making ends meet, we borrow money from friends and family members. These debts must be included in a bankruptcy filing for numerous reasons. First, they are unsecured, legitimate debts. Second, you are required to list all of your debt. You cannot exclude the creditors which are more favorable to you. While it may be easy to ignore debts to friends and family members, they are unsecured creditors under the law and must be listed as creditors. Often, clients wish to repay friends and family members or a doctor they want to continue to see. You can do this after the bankruptcy is over. Even though you will not have a legal obligation and creditors can’t request money from you, you are free to repay after discharge if you choose to do so.

Repaying Loans to Family

It may be tempting to repay loans to friends and family members prior to filing bankruptcy. However, it is important to discuss this possibility with a bankruptcy attorney before you take this step. You have to list all payments within the last 12 months to insiders on your bankruptcy petition. In most cases, the trustee will ask you this question also at the 341 meeting. In some cases, this may fall under a clause in the bankruptcy code called preference. In effect, you have given preference to a debt owed to a friend or family member over your credit card payments. In these cases, the trustee of the bankruptcy may order these payments reversed and paid to all unsecured creditors equally. This can cause some problems later on when the relative or friend does not have the money anymore you paid him 6 months ago. For example if you re-pay your father in law before filing bankruptcy and it is not disclosed until the 341 meeting, the trustee will ask you father in law to repay it. You might not want to get you father in law involved in your bankruptcy proceeding. After you father in law pays back the money to the trustee, you still might feel an obligation to repay him after the bankruptcy case is over.

There are also situations in which a relative or friend might be relatively safer from request by the trustee. If the money was paid to a relative in a different state whose only income is social security and does not have the money anymore. It is unlikely that the trustee would go after that relative. Pursuing such a claim might not be successful. Even if the trustee obtains a judgment for repayment of the money to the trustee, the relative might be “judgment proof” if the only income is social security.

Full Disclosure

When you are meeting with your bankruptcy attorney it is critical that you make full disclosure of all debts that are owed including those to friends and family members. It is also important that you disclose all payments made during the prior year. Your bankruptcy lawyer can only help you if you are completely open and honest about all debts that you owe and all payments that you have made against these debts.

When you have outstanding loans to friends and family members, they may be discharged in Chapter 7 bankruptcy. However, once your bankruptcy is discharged, you have the right to repay any debts that were discharged including those to friends and family members. Failing to disclose these loans and payments can cause additional legal problems.

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