24 Sep Frequently Asked Questions About Bankruptcy-Part One
Most people want simple, clear, answers to a few simple questions about bankruptcy. Sometimes the answer depends on your circumstances. Most bankruptcy lawyers, however, turn the tables and ask a whole lot of questions before answering the client’s questions.
Because every case is different, it’s dangerous to generalize without some factual background. While it is no substitute for a consultation with an experienced bankruptcy lawyer, below are some of the most frequently asked questions that have a straightforward answer.
Hopefully these answers will help you decide whether you need to explore the bankruptcy option further.
1.Do I have to list my house even though I intend to keep paying for it? Yes, you do. See, I gave you a straight, simple answer, no ifs, no qualifications. No “it depends.” You have to list everything you own when you file bankruptcy, even if (especially if) you intend to keep it. Does that mean you will lose it? The answer to that one is “it depends,” but probably not.
I hear from a number of clients that someone they know filed bankruptcy and didn’t list their house. That is probably a misunderstanding, because most people who own their homes and file bankruptcy keep their homes and continue to make payments. So in layman’s terms, bankruptcy didn’t affect the house. But you still have to list it.
It bears repeating, though, that does NOT mean you are going to lose your house. If that would be the outcome, you would obviously choose not to file. So, go talk to a bankruptcy lawyer and let him look at your individual situation and tell you what options you have, and what is the likely outcome.
2.What happens if I don’t list my house? Well, first of all, you’ll need to find another lawyer. One of my professional goals is not to see my clients go to jail. An even more important goal for me is to avoid going to jail myself.
Not listing all your assets is, plain and simple, bankruptcy fraud, and it’s a crime. The FBI investigates, the grand jury indicts, and they haul you off to the pokey. I have never met anyone who had any asset that I thought was worth a stint in the slammer. In fact, most of the time this comes up, it doesn’t matter. The vast majority of cases do not result in the loss of any property.
3.How will they know if I don’t list it? The answer to this one is easy when you’re talking real estate, because real estate records are public and anyone can find out whether you own real property.
Other types of property may not be officially public record, but when people try to conceal assets, they are found out in the oddest ways. One of my local trustees discovered a debtor hadn’t listed assets when he happened to see a want ad offering to sell some items that hadn’t been listed.
Often creditors have information either about purchase of assets, or financial statements listing your assets, and creditors have every incentive to help the trustee locate assets.
Bottom line, it really doesn’t matter how someone would know if you fail to list assets. What matters is that it makes no sense at all to risk it. Talk to your attorney about all of your assets. She can tell what will happen depending on the type of bankruptcy you are considering, and how to handle any consequences.
4.Should I transfer my house (or car, or baseball card collection) to a friend or relative to keep it from my creditors? Actually, this is a question I wish more people ask before they do it. It may seem like a good idea, but it isn’t. When you transfer any property to keep your creditors from reaching it, it’s called a fraudulent transfer, it is a bad thing, and it can be undone. In fact, if you transfer property in fraud of creditors it may preclude receiving a discharge, so a bankruptcy would do you no good. I have talked to any number of people over the years who have made such a transfer before coming to see me, and I can’t help them. And usually they have transferred property that they would have been able to keep as exempt anyway. Not smart, and not necessary.
5.Do I have enough debt to file bankruptcy? This, too, is a common misconception. You don’t have to have any particular amount of debt, and you don’t have to be behind, or have any particular debt structure to file bankruptcy.
Now, you may have so little debt that it doesn’t make sense to file bankruptcy, or that it makes better sense to file a Chapter 13 payment plan rather than a Chapter 7 liquidation, but there is no qualifying amount. If you feel financial pressure, and you aren’t able to make progress paying down principal, bankruptcy may be appropriate.
The only real qualifying factor is that you act in good faith and not abuse the bankruptcy system.
Come back for Part Two of frequently asked bankruptcy questions.
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