Considering Bankruptcy? Here is what you need to know.
Do not wait until the last moment
Most people in Mesa want to do all they can to deal with their debt on their own. This is natural, and even admirable. However, unless you have a specific plan for paying off your debt, and stick to it, the likelihood of any success is diminished, and the likelihood of your problems getting worse is increased. Consider this example: Mary is a single mother of 2 boys living in Mesa, Arizona. Her hours at work were cut, and after a few months she finds herself falling behind on her bills. In order to buy a little more time, she cashes out her retirement account to try to pay off her debt. Although she may feel like she is doing the right thing, she fails to realize that the solution is short-lived, and, on top of that, has significant negative tax consequences.
It is also common for a person like John, who lives in Metro Phoenix, to take out a second mortgage on his home to try to pay off credit cards. A move like this creates significant risk for the family home. If things don’t get better, John just traded an unsecured debt for a secured debt and the risk of losing his house. In both scenarios, it is important to understand the consequences of your actions. Oftentimes, however, your emotions will cloud your judgment.
Whether you live in Mesa or Phoenix, it is easy to reach out to a qualified legal professional to talk about your options. By consulting a professional when you first encounter financial difficulties, you can avoid decisions that may make it difficult for you to rebuild your credit history and finances. In addition, a good bankruptcy attorney can advise you if there are non-bankruptcy options available in your situation. For example, it may be possible to negotiate a settlement with each individual creditor. Or, if a debt is old or has been sold multiple times, the collection company may not be able to prove that it owns the debt, and the debt can be defeated that way. Generally though, the non-bankruptcy options diminish the further into debt you get. If bankruptcy is the right option for you, an attorney can also help you plan your finances and transactions to maximize the benefits of bankruptcy.
Regardless of who you end hiring, make sure you find someone who knows what they are doing and can advise you on the best path for your long term success. Attorneys who look only at one solution (e.g. only bankruptcy, or only debt settlement) will do you a disservice and leave you with fewer options that may make it more difficult for you to get your finances, income and life back in order.
What not to do before you file for bankruptcy
If bankruptcy is something you are considering, there are some things of which you need to be aware:
- Do not attempt to pay one debt by taking on another debt. Doing so is detrimental in almost all situations. While it is possible to have a situation where incurring one debt to pay another may make sense, each such specific scenario should first be discussed with an attorney experienced in bankruptcy law.
- Do not give away any of your property. Many people erroneously think that they will lose all their property when they file for bankruptcy. So in order to “protect” the property they will give it to a friend or a relative—for example, they will transfer the title to their car to one of their children. In fact, most property that an average person owns is protected in bankruptcy. If, however, the property is given to someone else, then it loses that protection. What’s worse, the bankruptcy trustee can get the property from the person to whom it was given. If it turns out that you do have property that would not be protected in bankruptcy, an experienced bankruptcy lawyer can help you protect it in a way that will be effective in bankruptcy.
- In most situations, you want to avoid significantly increasing your income in the months before the bankruptcy is filed. The reason for this is that your income is used to determine whether you qualify for Chapter 7 bankruptcy. If your income is too high, then you may not qualify. The specific amount you can earn and still qualify depends on several factors, including your household size and your allowable expenses. The determination of whether your income allows you to qualify for Chapter 7 bankruptcy is called the “means test.” So, what does all this mean in practical terms? If you need to file for bankruptcy, but you also anticipate your income to go up in the near future (for example, because you are looking for a new job), you should file for bankruptcy before you get the new job.
- In Chapter 13 and Chapter 11 bankruptcy, your income plays a role in determining the required monthly payments. However, because income does not affect whether or not you qualify for those two types of bankruptcy, increases in income are less critical if you are considering either Chapter 13 or Chapter 11.
Choosing the right type of bankruptcy
It may seem common knowledge to some, but many people contemplating bankruptcy do not realize that there are several different types of bankruptcy available. The main ones are Chapter 7 bankruptcy, Chapter 13 bankruptcy, and Chapter 11 bankruptcy. While the ultimate goal with any bankruptcy is the discharge (elimination) of debts, each type of bankruptcy serves specific purposes and may be more or less advantageous in a specific situation. For example, consider Jane, who lives in Phoenix, Arizona. Jane is behind on her mortgage, and a foreclosure is looming. Jane has no other debt, but after doing some research online, she learns that filing for bankruptcy will stop a foreclosure, so she files for Chapter 7 bankruptcy. The foreclosure does get put on hold while she is bankruptcy, but once the bankruptcy is over in a few months, the foreclosure will resume, and Jane will still lose her house. Why? Even though Chapter 7 bankruptcy is the simplest and most common type of bankruptcy, it does not allow you to deal with mortgage arrears. For that, a Chapter 13 or Chapter 11 bankruptcy is required.
When selecting a lawyer, you should be careful to find out if the lawyer handles all the available bankruptcy types. Many lawyers concentrate on only one or two types of bankruptcy, and may not be able to evaluate the entire range of options that are available to you. Be especially wary of lawyers who tell you over the phone or without reviewing your financial documents that they can do a certain type of bankruptcy for you.
Can I file for bankruptcy without a lawyer?
The short answer is yes, you can file without a lawyer. Money is of course a concern for anyone considering bankruptcy, and not having to pay a lawyer seems like an obvious way to save some money. Before you decide whether or not to use a lawyer, you must ask yourself if you are willing to dedicate the time and effort to learn the law and the procedures. This involves more than just reading a few online blogs or web posts. Even the simplest Chapter 7 bankruptcy requires a thorough understanding of not only the Bankruptcy Code, but also of state law on relevant topics like exemptions, as well as procedural rules both for the bankruptcy courts in general and for the local court in which you are filing your case. So, to properly learn how to prepare your own case, you will need to read the actual statutes and the rules. If you are not willing to do that, filing on your own is probably not a good idea.
Assuming you’ve spent the time doing your research, you must still ask yourself if you are comfortable enough in your own knowledge to file your own bankruptcy case. The biggest problem for people filing on their own is not realizing that something is a potential issue. For example, filing at the wrong time may result in the denial of the discharge of a particular debt (like taxes), or in the denial of the discharge in general (for example, if you had a previous bankruptcy). For example, in a recent case, an Arizona man whose child was seriously injured by a defective product filed for bankruptcy to take care of his other debt. What he did not realize was that his claim for his child’s injuries became part of the bankruptcy and had to be disclosed. Because he did not list this claim in the bankruptcy documents, he lost the right to ever pursue that claim. In short, in order to effectively file for bankruptcy on your own, you must be very thorough in your research.
Lastly, the only successful bankruptcies I’ve seen filed without a lawyer are individual Chapter 7 bankruptcies. Chapter 13 and Chapter 11 bankruptcies are generally too complex and have too many moving parts to be successfully handled by non-lawyers (or even non-bankruptcy lawyers), no matter how smart or otherwise well-educated the person may be.
Steps to filing for bankruptcy
The following is a list of steps that you will need to take in order to successfully file for personal bankruptcy under Chapter 7 (business bankruptcies are generally more involved). The list is based on the assumption that a lawyer will be helping you with the bankruptcy, in which case the lawyer will generally assist you and provide you with forms to simplify the process. However, the steps are generally the same even if you are filing on your own.
- Gather and organize your information. This includes information on your assets, your debts, your income, and your expenses, as well as a history of recent financial transactions.
- Prepare the bankruptcy petition, schedules and statements based on the above information.
- Complete the credit counseling course (this can be done at any point within 180 days before step 4).
- File for bankruptcy by submitting the petition, schedules and statements to the court and paying the filing fee.
- Generally, at this point the bankruptcy trustee assigned to your case will contact you and request some information. The specific information requested varies by the trustee, but usually includes tax returns, bank statements, and similar items.
- Meet with the bankruptcy trustee. The meeting with the trustee is required in every bankruptcy case, regardless of the chapter, and is generally referred to as a “creditors’ meeting” or “341 meeting.”
- Complete the post-petition financial management course (this can be done at any point after step 4, and must be done within 60 days of step 6).
- Receive your discharge. This may take a few months after the meeting with the trustee. In addition, if there are any issues that may impact your eligibility for discharge, they will need to be resolved before you receive your discharge. Having non-exempt property that the trustee needs to collect and sell normally should not delay your discharge.
Need help deciding whether bankruptcy is the right solution for your situation?
Yusufov Law Firm PLLC offers bankruptcy and debt relief solutions that draw on the experience and proven track record of bankruptcy attorney, Mr. German Yusufov, who has successfully handled numerous Chapter 7, 11 and 13 bankruptcy cases, as well as complex bankruptcy litigation matters, including recovery of damages for homeowners taken advantage of by their mortgage company and the discharge of over $130,000 in student loan debt.
For honest legal advice, personalized financial plans, and vigorous representation, contact a Mesa Bankruptcy Attorney at Yusufov Law Firm PLLC at (480) 788-0098.
- What debts can be discharged?
- Can I keep my house?
- Will bankruptcy stop wage garnishments?
- Do I have to give up all my assets?
- Do I have to list all my debts and assets?
- How will bankruptcy affect my credit?
- Can I discharge a payday loan?
- Can I eliminate my mortgage?
- What is a meeting of creditors?
Call us at (520) 745-4429 or (480) 788-0098 or fill out the form below and we will contact you.