This might be a difficult topic for some to hear, it is most certainly something that must be said. While it is true that nobody WANTS to file bankruptcy, it is more likely if you are now contemplating doing it, you probably waited too long. Even worse, you have contemplated filing but have still found reasons that you think you can continue to stall a bankruptcy filing. Waiting to file can lead to disastrous consequences, consequences that should have you seriously evaluating what your strategy might be for your immediate and distant future.
When I speak with a potential client that clearly needs to file a bankruptcy petition and they decline to proceed, I immediately wonder what will change to correct their trajectory if they continue to do same things as they have to the point where they must file bankruptcy. This is not meant to be judgmental but merely observational. Potential clients come to me with myriad reasons for filing a bankruptcy case – job loss, medical expenses, global pandemic or just simply mismanagement of their finances. None of these reasons is any less worthy of the protections that are afforded by the Bankruptcy Code than any other. The one point that must be understood is that in nearly all cases where a person’s finances have gotten to the point where they are considering a bankruptcy case, there is almost nothing that can be done to reverse their course, absent an unexpected windfall of cash through a lottery win or unexpected inheritance, regular wage income of most Americans is not sufficient to sustain ongoing living expenses AND begin to chip away at months or years of delinquent debts that have incurred late fees and interest charges while not being paid.
As a result of the decision not to file a case, potential clients usually embark on a mission of bad decision making that will ultimately make their financial situation worse and potentially bar them from being able to file a bankruptcy petition later. Here is a short list of things you are likely doing to stall a bankruptcy but creating issues that will complicate a future bankruptcy petition:
- Using retirement funds to pay debts – under bankruptcy laws your retirement accounts are “exempt” and cannot be accessed as part of your bankruptcy case. If you are withdrawing or borrowing against these accounts to pay debts that will be discharged in bankruptcy, then you are leveraging your future to pay debts that will be wiped out by a bankruptcy.
- Taking cash advances from one credit card to pay another – this practice happens often. However, it can get you into trouble as cash advances (and purchases of “luxury” items) can be seen as bad-faith transactions and can be challenged in a bankruptcy. If a creditor is successful in its challenge of a purchase or advance, then that transaction can be deemed “non-dischargable” and even after your bankruptcy case is over, you will still owe the amounts advanced.
- Selling property – in a Chapter 7 case, the court appointed Trustee is charged with evaluating your non-exempt assets to see what, if anything, they can sell to raise cash to pay your creditors. If YOU sold an asset, specifically, if you sold it for less than it is worth, this transfer can be considered fraudulent, and you could be liable to pay the loss to the court.
- Foreclosure, eviction or Repossession – you may be behind on payments for your house, apartment or car and your creditor has not yet exercised their right to seize the property. Filing BEFORE the seizure absolutely protects your rights to retain the asset, waiting until the seizure occurs, will reduce your leverage in your ability to keep your house, apartment or car.
- Getting sued on your unsecured debts can create liens on your property – one final critical issue with delaying a bankruptcy filing is the risk that your creditors sue you for failure to pay. Once you are sued, unless you can successfully defend yourself, your creditors will obtain a judgment against you. That judgment can be used to create a lien on your house, your wages and even your bank accounts. Filing a bankruptcy AFTER the lien is created, may be difficult or impossible to undo in your case.