Don't make critical mistakes before your bankruptcy filing
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Chapter 7 bankruptcy is the most complete legal relief available for those drowning in debt. If you are eligible for a Chapter 7, it can wipe out nearly all of your unsecured debt including medical bills, credit cards, and some income taxes. You may qualify for a Chapter 7, no matter how much you make, so long as you are unable to service your debts on that salary. You should not assume that you can't qualify for a Chapter 7 - no matter your circumstances. However, there are some things you can do that will either ruin your chances of qualifying for a Chapter 7 or of getting the best results from the bankruptcy. Here are five ways to mess up your Chapter 7:
#1 Pay back friends and family
If you're deep in debt, you may have turned to friends or family for help. Now you may want to pay them back so they are not part of your bankruptcy, but this is one of the worst things to do. Any creditor you pay back in the weeks before your filing can be considered a preferential payment. The Trustee could demand repayment so if you pay back your parents, they could be forced to give back the money. That can cause more problems than you bargained for. Just wait and pay them back after the bankruptcy.
#2 Transfer or pay off an asset to shield it
You may worry that you'll lose something in your bankruptcy – that the Trustee will sell it to satisfy some of your debts. So if you have a second car, you may be tempted to sign it over to a friend or family member to keep it out of the bankruptcy. This can backfire and result in accusations of fraud – that's the last thing you want. And if you're worried about keeping your car, you may be thinking about paying it off. This may not be a good idea because it could exceed your protected equity limit or throw off your expenses and make you ineligible for Chapter 7.
#3 Sign up for new credit
If you sign up for new credit or run up your credit cards just prior to filing Chapter 7, this can also trigger a fraud accusation. The creditor can say you knowingly ran up debt before you filed bankruptcy. So if you're considering filing insolvency, you should stop using your credit cards. And you shouldn't accept or seek out any new offers of credit. The premise of bankruptcy relief is that you unintentionally got in over your head with debt – not that you went looking for trouble.
#4 Make payments on overdue debt
To get the best results from your Chapter 7 bankruptcy, you should avoid any Hail Mary payments on debt that is eligible for Chapter 7 relief. This is money that could be better spent staying current on your bills once your Chapter 7 goes through. There is no reason to drain your savings or take money out of your retirement account to extinguish debt in the last minute before your filing – particularly if it's debt the Chapter 7 will wipe out. Plus, any payments could be considered preferential and recalled.
#5 Wait too late to file or file too soon
Timing is critical with a bankruptcy filing. You want to get maximum relief since you are legally blocked from filing again for eight years from the filing date. Certain income tax debts can be wiped out in bankruptcy so long as you filed the return on time and it's been two years since the debt was assessed. You may want to delay a couple of months to file to let these debts fall in the eligibility window. Alternately, you may have a foreclosure to contend with and timing is critical with those - you may be better served filing later rather than sooner.
How to get the best results from Chapter 7
To get the most complete debt relief from your Chapter 7, talk to a reputable North Carolina bankruptcy attorney before you pay off any debts, make any changes to your assets, or give any money to your loved ones. You can go in for a free consultation to discuss your financial circumstances, your debt, and income and get the advice you need to make the best decisions about what to do and not to do leading up to your bankruptcy and the best timing for your Chapter 7 filing.
Contact the Law Offices of John T. Orcutt for a free consultation in Raleigh, Greensboro, Fayetteville, Wilson, Durham or Garner. Call +1-919-646-2654 and ask about our zero down North Carolina bankruptcy deals today.