There are specific steps that you must undertake before filing for bankruptcy to protect your assets and produce a successful outcome. There are also actions that you must avoid to prevent loss of assets, termination of your case, or possible jail time if intentional fraud becomes evident.
Some of these actions are mandated as part of a bankruptcy filing. Others are simple suggestions to provide maximum benefits and protection for the filer. However, since bankruptcy can result in a significant loss if not approached correctly, it is essential to consider all of these actions as equally important in protecting your assets and bankruptcy case.
Steps to Take Before Filing for Bankruptcy
You must determine the value of your assets to ensure that they will be exempt from liquidation (seizure and sale) to repay creditors. An accurate accounting of your annual household income will also be required to determine your eligibility for the type of personal bankruptcy case that you intend to pursue.
Both the value of your property and your household income will also be factors in the formulation of a repayment plan if your assets and income exceed state-mandated levels.
Value Your Assets
Someone must document the value of your assets, using different methods according to the individual property. They can ascertain the worth of household goods, personal property such as clothing, and home electronics by determining the cost of replacing them at their present age and condition.
Your equity in more expensive assets, such as your home, vehicle, or luxury items, must be correctly appraised through a professional source. That will help to avoid conflicts with the trustee guiding the procession of your bankruptcy case. Also charged with repaying creditors as much as possible within the limitations of your assets and income, the trustee will expect you to prove that your valuations are legitimate.
Your home must be appraised by a state licensed appraiser that performs bankruptcy appraisals, which will often differ from those for mortgage lending or other uses. Expensive jewelry or other personal items also be appraised by a professional.
Trustees will usually accept valuations of vehicles from online car sites that provide these services, but you should visit multiple websites to be confident that their assessments are similar.
Determine Your Household Income
Your gross household income, required for a bankruptcy filing, includes the income of every occupant of the home. Also counted are regular contributions from persons outside of the household. That is true even if you are filing an individual petition.
You can compare your annual household income to the median income for your state if you intend to file for Chapter 7 bankruptcy. You will be required to submit to a “means test,” which compares your income to your household expenses if your annual income exceeds the state’s median.
Actions to Avoid Before Filing for Bankruptcy
You must refrain from attempts to protect property through deception as well as use your remaining funds to repay specific creditors over others.
It’s crucial to avoid any activities that involve hiding or transferring of assets before filing for bankruptcy. That includes assigning possession of real property such as your home and giving away personal property or selling it at reduced prices to avoid relinquishing it to repay creditors.
Deliberate transfer or hiding of assets before filing can cause the dismissal of your bankruptcy case. Flagrant attempts at deception could result in a lengthy sentence in federal prison.
Avoid Unequal Repayment of Debts
You cannot repay family members from whom you’re received personal loans more than an aggregate sum of $600 in the year preceding a bankruptcy filing, and other creditors 90 days before filing.
If the family member or creditor makes unequal payments, they must repay any amount over $600 to the trustee in charge of the case, who will then distribute the funds among other creditors.
Bankruptcy is a stressful process performed at a vulnerable time in your life, so it’s important that you don’t make any major mistakes that could place your bankruptcy filing in jeopardy.