It’s natural to try to hold on to your assets, so when faced with the prospect of filing for bankruptcy, people often look for ways to keep as much as possible after the bankruptcy is over. Bankruptcy is a way out, usually as a last resort, for people whose debts have become overwhelming, and there are legitimate methods to retain some or most of your property once the bankruptcy is discharged. However, bankruptcy filing is complex, and there are mistakes you can make that could create complications, cause your bankruptcy discharge to be denied or even to be considered fraudulent and lead to criminal charges.
The skilled and seasoned Ohio debt-relief attorneys at Fesenmyer Cousino Weinzimmer understand that even the most well-intentioned people can find themselves in financial trouble. Bankruptcy, when filed correctly, will provide many protections from creditors and a way forward for people who are unable to pay their debts. We offer a free consultation to evaluate your individual situation so you can avoid having problems before or during your bankruptcy procedure.
Understanding What Happens in Bankruptcy
There are two major types of personal consumer bankruptcy — Chapter 7 and Chapter 13.
Chapter 7 is the most common form of bankruptcy. It is over quickly, and it will eliminate most or all debts. There are Ohio exemptions that can protect property such as clothing, cars, equipment used for work (like tools) and household furnishings. If you do not own a great deal of property, your possessions may all be exempt, qualifying you for a “no asset” case.
Not everyone is eligible for Chapter 7 bankruptcy protection. Your income and debt will be subjected to something called a “means test” to determine if you qualify.
If you are not eligible for Chapter 7, filing for Chapter 13 is an option. Under Chapter 13 bankruptcy, you can consolidate payments to repay some or all of your debt affordably over a three- to five-year period. Harassing calls and letters from creditors stop, and once you successfully complete the payment plan, dischargeable debts covered by the plan are eliminated.
What Not to Do
No matter which type of bankruptcy you will be filing, here are some things you should not do:
1) Do Not Pay Creditors
You can continue to make routine payments and pay monthly bills, but making any large payments to a single creditor can cause problems. If the courts believe one creditor has benefited over others, they may consider this a ‘preferential transfer’ and may later sue the creditor to recover the money.
2) Do Not Pay or Give Money or Assets to Relatives or Friends
Any debts you pay prior to your bankruptcy filing will be analyzed by a bankruptcy trustee who oversees your case, and those to friends and family are especially likely to be viewed as an attempt to defraud the government. If you can, pay these people back after your bankruptcy is discharged. Giving away assets, such as a car, to friends and family is also likely to be viewed as fraudulent; if these items meet Ohio exemption criteria, you may be able to keep them anyhow. Attempts to sell items cheaply so they can be purchased back later on may also be viewed as fraudulent. And you cannot just transfer items out of your name to avoid losing them in bankruptcy.
3) Do Not Run Up New Debt
If you run up new debt, such as taking out a loan or running up debt on an existing or new credit card, your creditors can claim you did so without intending to pay it back. The judge will look closely at debts that you ran up within the 6 months before you filed and may refuse a discharge for any debts that were not for necessities. If these debts are viewed as fraudulent, you will still wind up owing them.
4) Do Not Drain Retirement Accounts
Withdrawing funds from retirement accounts in an effort to get current on debts is a big mistake. Retirement funds accounts are almost always protected under bankruptcy, so you should be able to retain them after bankruptcy anyway. Taking out money from investment accounts, like 401(k)s, means you will be taxed on that withdrawal as income and will have to pay penalty fees as well.
5) Do Not Provide Inaccurate Information
When you file for bankruptcy, you must provide full and complete information about your assets, debts, and other financial information. If you forget to list certain debts or you are caught hiding or providing inaccurate information, you can once again be accused of fraud, and this can even lead to criminal charges. Even debts you believe to be nondischargeable in bankruptcy must be listed.
6) Do Not Hide Intentions to File
Once you intend to file for bankruptcy, it is best to inform creditors as soon as possible. You will then benefit from the automatic stay provision of Ohio bankruptcy laws which protects you from collection attempts by creditors. Once the bankruptcy process is begun, your creditors’ correspondence must go through your lawyer.
7) Do Not Take Out A Second Mortgage
Taking a second mortgage will be considered as taking on more debt, and mortgage debt is not allowed to be discharged in bankruptcy and will need to be repaid. The equity in your home is usually protected during a bankruptcy process, and a second mortgage can actually place you in an even bigger financial bind.
8) Do Not Take Out Payday Loans or Cash Advances
Payday loans and cash advances are not a quick fix. They have high interest rates and fees that may lead you to more debt. If you take out these loans shortly before filing bankruptcy, you may be ordered to pay a portion of it back.
The experienced Ohio debt-relief attorneys at Fesenmyer Cousino Weinzimmer know that bankruptcy can give you a fresh start, but it has to be done properly to avoid mistakes. Every individual situation is different, so we offer a free consultation to evaluate your entire financial picture. We will examine your income, your debts and your goals and help you find the best path to a brighter financial future.
To learn more about how our firm can be of assistance, call one of our conveniently located office branches at 614-228-4435 (Columbus), 937-222-7472 (Dayton), or 877-654-5297 (Cincinnati) or email for your free consultation so we can determine what solutions will work best for you.