Bankruptcy is a strong device that may as soon as and for all get rid of your debt issues. And whereas chapter is so much much less painful than most think about, there are specific pitfalls that may make the method an entire lot extra difficult. On this submit I’m going to debate 13 pitfalls of chapter – most of which might be prevented with slightly planning.
Right here we go…
- 1 #1 – Cash in Your Financial institution Account
- 2 #2 – Money Advances on Your Credit score Card
- 3 #three – Luxurious Purchases
- 4 #four – Funds to Pals and Household inside 1 Yr Previous to Your Bankruptcy Submitting
- 5 #5 – Funds to Unsecured Collectors inside 90 Days Previous to Your Bankruptcy Submitting
- 6 #6 – Sale of Property for Lower than Market Worth
- 7 #7 – Non-Homestead Actual Property
- 8 #eight – Actual Property Outdoors the State of Arizona
- 9 #9 – HOA Charges Incurred After the Submitting of the Bankruptcy Case
- 10 #10 – Inheritance Inside 6 Months After Submitting for Bankruptcy
- 11 #11 – Private Damage Claims
- 12 #12 – Tax Refunds
- 13 #13 – Wages which are Earned, However Not Paid Previous to Bankruptcy
- 14 Be Cautious Out There!
#1 – Cash in Your Financial institution Account
On the day that your chapter case is filed Arizona exemption regulation solely permits you to have $300 complete amongst all of your checking/saving accounts ($600 for married couples). If in case you have greater than $300/$600 amongst your financial institution accounts on the day your chapter is filed then you may be required to show over these extra funds to your chapter trustee who will then distribute the cash to your collectors.
It is very important perceive that this solely applies to the cash in your checking account on the day your case is filed. After the chapter is filed you’ll be able to then proceed to make use of your case as you probably did previous to your chapter submitting.
With somewhat planning you’ll be able to keep away from having to show any further funds over to the chapter trustee. Listed here are the Arizona Shopper Regulation Group we assist shoppers plan out when their case can be filed and keep away from submitting when there are giant sums of cash in the account, for instance on pay day.
Professional Tip: It is very important perceive that you simply can’t merely withdraw cash out of your account, file your chapter, after which re-deposit the cash again into your checking account after your case is filed. The $300/$600 restrict applies to complete money available, whether or not it’s in your checking account or at residence beneath the mattress. If in case you have greater than the exempt restrict it is very important work together with your chapter lawyer to plan how these funds might be spent down previous to your submitting.
#2 – Money Advances on Your Credit score Card
When you make the choice to file for chapter you need to cease utilizing your bank cards. In case you take out a money advance in your bank card inside seventy (70) days previous to the submitting of your chapter the regulation imposes a presumption that the debt related to the withdrawal doesn’t go away.
For instance, for those who take a money advance of $1,000 in your bank card thirty (30) days previous to the submitting of your chapter there’s a presumption that the $1,000 money advance won’t be eradicated together with your different money owed in your chapter case.
Nevertheless, although I don’t advocate you’re taking a money advance it’s also necessary to notice that the bank card firm can be required to return into your chapter case and file paperwork with the courtroom requesting that an order be entered stating that the $1,000 was not eradicated in your chapter.
If the bank card firm doesn’t do that, the debt goes away with all of the others.
#three – Luxurious Purchases
The Bankruptcy Code additionally states that in case you use your bank cards to buy “luxury items” inside ninety (90) days of your chapter submitting that there’s a presumption that these money owed don’t go away. What does the chapter courtroom think about a luxurious merchandise? The Bankruptcy Code doesn’t inform us precisely what constitutes a luxurious merchandise, however courts have rendered selections that state that issues like groceries and fuel on your automotive are usually not luxurious gadgets and can be eradicated identical to another debt.
Additionally, like the instance above on money advances the bank card firm should come into your chapter and make an look and file a proper objection to these particular costs. In the event that they don’t do this the money owed are eradicated.
#four – Funds to Pals and Household inside 1 Yr Previous to Your Bankruptcy Submitting
I’ve discovered that when individuals file for chapter they typically really 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 member of the family. As a result of of this I’m typically requested whether it is okay to pay the member of the family or good friend (also called an “insider” in the chapter world) earlier than the chapter is filed. That means you don’t should really feel like an fool at subsequent yr’s Thanksgiving dinner since you included the debt to your brother in your chapter case.
The issue is, for those who owe cash to an “insider” and make funds on the debt in the yr main as much as your chapter submitting, these funds are thought-about a “preference” and might be recovered by the chapter trustee.
For instance, let’s say you owe your brother $10,000 and you’ve got been religiously making month-to-month funds to your brother of $300 for the final yr. Since you are associated your brother is taken into account an “insider” and all of the funds you made on the debt you owe your brother could be recovered by the chapter trustee. They will actually ask your brother to show all of that cash over to the trustee after which the trustee will take the funds and disburse them to your collectors.
What in case your brother gained’t flip over the cash? They sue him – making that subsequent household reunion tremendous awkward.
Most chapter trustees in Arizona offers you a chance to pay the cash to the trustee in order that they don’t need to hassle your brother in this instance, nevertheless the higher path to go is that if you realize you might have to file for chapter to cease making funds to any insider.
#5 – Funds to Unsecured Collectors inside 90 Days Previous to Your Bankruptcy Submitting
Just like the rule above, for those who pay an unsecured creditor inside the 90 days previous to the submitting of your chapter case the chapter trustee can contact the creditor and ask for the cash again. Then, as soon as they’ve the cash, they’ll distribute it out to collectors evenly.
For instance, let’s say that inside 90 days previous to submitting for chapter you pay a photographer for the marriage footage they took of your wedding ceremony. The chapter trustee can go and demand that these funds be paid again to the chapter property after which distributed to all of your collectors.
For many individuals this isn’t as awkward because the restoration of cash paid to an insider as you don’t have the connection to fret about with a common creditor that you’ve with your loved ones members or pals. Nevertheless, if you wish to proceed to do enterprise with the photographer talked about above, you would wish to determine a option to get this quantity paid in order that they don’t have handy over the cash you paid them.
#6 – Sale of Property for Lower than Market Worth
Typically individuals assume they will recreation the system by transferring their belongings out of their identify previous to the submitting 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 after which submitting for chapter (no less than it prevents you from getting away with it).
For those who promote one thing previous to the submitting of your chapter case it’s essential to promote it for about what it’s value. For instance, let’s say you’ve gotten a ship that’s value about $5,000 and need to promote it previous to submitting for chapter. In the event you have been to promote it in a professional sale for $four,800 and title truly transferred then there wouldn’t be an issue with you submitting for chapter.
Nevertheless, in case 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, promote it for what it’s value, and provides that cash to your collectors.
In case you are considering of submitting for chapter and are needing to promote one thing, ask your lawyer first, after which be sure to promote it for what it’s value and that cash truly modifications palms.
#7 – Non-Homestead Actual Property
In Arizona the homestead exemption protects as much as $150,000 in fairness in your own home. Nevertheless, when you have a cabin, apartment, or another type of actual property in your identify, and if that property has any fairness in it, then there isn’t a homestead exemption and the chapter trustee will step in and promote the property, paying off any liens on the property after which taking the cash and paying it out to your different collectors.
In case you have actual property that isn’t your private residence, and you’ve got fairness in it, then you might need to take a look at a chapter 13 chapter 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. To ensure that your own home to be protected underneath the homestead exemption you will need to make the most of the property as your own home and the property have to be situated in the state of Arizona. When you personal a cabin in southern Utah or a apartment on the seashore in California you’ll not have any homestead safety in these properties and would lose them in a chapter.
#9 – HOA Charges Incurred After the Submitting of the Bankruptcy Case
In Arizona home-owner’s associations have an enormous quantity of energy (an excessive amount of when you ask me). If you don’t pay your HOA assessments after your chapter case is filed these fees don’t go away and your HOA will be capable of pursue you – and in most instances lien your house – in the event you don’t get them paid.
Professional Tip: HOA charges that you’ve previous to your chapter can be eradicated until the HOA has a lien in your property. If the HOA has secured a lien towards your property then the debt is taken into account secured and won’t be eradicated in your chapter case.
#10 – Inheritance Inside 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 chapter courtroom. Nevertheless, in case you grow to be entitled to an inheritance inside 180 days (roughly 6 months) after your chapter case is filed, you should notified your lawyer and the chapter trustee and your inheritance can then be seized to pay your collectors.
It is very important perceive that the regulation states that in the event you turn out to be entitled to an inheritance inside 180 days, not that you’ve acquired an inheritance inside 180 days. Because of this if you already know you’re listed in somebody’s will and can obtain an inheritance upon their demise, after which they do die, you turn into entitled to the inheritance upon their dying, although you gained’t obtain the inherited property till later.
#11 – Private Damage Claims
If previous to the submitting of your chapter you’re injured and develop into entitled to a settlement or payout as a result of your accidents, these funds could be seized by your chapter trustee if they’re acquired after your chapter case is filed.
It is very important let your chapter lawyer know if in case you have been in an accident or anticipate some sort of settlement or payout in order that your lawyer can correctly advise you as to when your chapter case must be filed. Typically it’s higher to attend till the private damage declare has been settled and paid earlier than leaping right into a chapter case.
#12 – Tax Refunds
Should you file a chapter 7 chapter you’ll probably lose half or all of your tax refund. Should you file a chapter 13 chapter 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 chapter 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 in the event you file your chapter throughout the next months:
- January – April: Should you file chapter through the first half of the yr it’s best should you file your tax return first, acquire your refund, after which use it previous to submitting your chapter case. Speak together with your lawyer about applicable issues you’ll be able to spend it on. When you file for chapter, after which obtain your tax refund you may be required to show over your complete refund for distribution to your collectors.
- Might – December: When you file your chapter after April and anytime up via December you’ll be required to show over a portion of the tax refund you obtain the next yr. The quantity you pay might be based mostly upon the month of the yr you file in. For instance, in case you file for chapter 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. Right 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 chapter is a unique beast altogether. The standard chapter 13 case final three to five years in size. Throughout that point interval the chapter trustee goes to offer you two choices in relation to tax refunds. First, you possibly can regulate your with holdings in your paycheck so that you simply maintain extra of your pay and thus scale back your possibilities of getting a big tax refund (click on HERE to learn how to seek out out what your tax with holdings must be). For those who change your withholdings you shouldn’t have to show over tax refunds you obtain.
An alternate is to maintain your withholdings the place they’re after which when you get a tax refund annually you possibly can flip it over to the chapter 13 trustee for distribution to your collectors.
#13 – Wages which are Earned, However Not Paid Previous to Bankruptcy
This final one is a sneaky method some chapter trustees attempt to come after further cash in your collectors. In case you have earned pay however don’t obtain 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 these funds acquired after your chapter case was filed.
This one is slightly complicated, so let me give you an instance – let’s say you had achieved a job earlier than you filed for chapter 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 might have filed for chapter. Sometimes cash you’re paid after submitting for chapter is just not half of your case and the trustee can’t come after it.
Nevertheless, the trustees in Arizona make the argument that for those who earned the cash earlier than you filed, however weren’t paid till after submitting, then they will nonetheless come after it as a result of it was technically earned previous to the submitting of your chapter case.
It is very important word that 75% of wages in Arizona are exempt. Because of this even when the trustee is coming after earned however unpaid wages, the trustee can solely come after 25% of these wages.
The most typical state of affairs I run into with this one is with actual property brokers. Typical state of affairs goes like this – actual property agent has carried out the whole lot needed to finish the sale of a house however the fee hasn’t been paid but as a result of the home hasn’t closed but. In a state of affairs like that the chapter trustee would be capable of make a declare to 25% of the fee for distribution to your collectors.
The easiest way to work round that is if in case you have a big fee examine coming or paycheck, then it might be greatest to attend till the fee is paid and spent previous to submitting for chapter.
Be Cautious Out There!
The purpose of this text is that will help you keep away from some of the grief that may come together with a shopper chapter case. Many (if not all) of these pitfalls could be prevented with slightly planning and the assistance of a superb chapter lawyer. The issues typically hit the unweary the toughest ensuing in a very painful chapter expertise.
In case you are in want of assist submitting for chapter give us a name. I supply a free session and am glad to stroll you thru the chapter course of and go over your choices – John Skiba, Arizona Shopper Regulation Group, (480) 420-4028.
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John Skiba, Esq.
We provide a free session to debate your debt drawback and assist you put collectively a recreation plan to get rid of your debt as soon as and for all. Give us a name at (480) 420-4028
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