Bankruptcy attorneys are in business because we truly want to help people. It’s an emotionally tough area of law, dealing all the time with clients who are financially hurting. Usually my clients are also hurting in other ways, related to what caused or contributed to their financial problems—an illness or injury, the end of a marriage or of a business, the loss of a job or, these days for many people, the loss of an entire career. What makes my day—just about every day—is to give great news to a client, that they will now get relief from their debts, or that there is a feasible plan to save their home, or to deal with their child support arrearage or their income tax debt. Every day I see people transformed in front of my eyes as impossible burdens are lifted from their fatigued shoulders.
But of course the information I share with clients is not always good news, and the advice I give isn’t always what my clients want to hear. Tough choices have to be made, and some goals turn out to be unrealistic. That’s all part of life.
But the most frustrating situations for both me and my clients are when we find out that they have self-inflicted some of their own wounds. These are the easily-preventable-except-now-it’s-too-late bad decisions they’ve made, often just a few months or weeks earlier, without getting legal advice beforehand. The goal of my next few posts is to help you avoid those.
Here’s a taste of some of what we will be covering.
1) Preferences: If you pay a creditor any significant amount before filing a bankrutpcy—especially a relative, business partner or close friend—the bankruptcy trustee may be able to force that relative—through a lawsuit if necessary—to pay back whatever amount you paid them.
2) Surrendering a “cramdownable” vehicle: If you really needed a vehicle but you owed more on it than it was worth and figured you couldn’t afford the payments anyway, and voluntarily turned it in, or waited to file your bankruptcy until after it was repossessed, you now learn that you may have been able to keep it in a Chapter 13 case with much lower payments and the total amount ultimately paid.
3) Squandering exempt assets: Just about every day clients tell me how they’ve borrowed against or cashed in retirement funds in a desperate effort to pay their debts, using precious assets that would have been completely protected in the bankruptcy case they later file and using the money to pay debts that would have simply been “discharged” (legally written off) in their bankruptcy.
4) Rushing to sell a home: Bankruptcy provides some extraordinary tools for dealing with debts that have attached as liens against your home, like judgments and second mortgages. If you rush to sell your home, you could lose out on opportunities provided by Chapter 13 to save yourself tens of thousands of dollars.
5) Allowing a judgment against you: If you are sued, you probably figure that the debt from that lawsuit will be discharged in your bankruptcy case. But sometimes the judgment can result in exactly the opposite, a ruling that the debt is nondischargeable in your case.
As you look at this list, notice that the “wrong” choice often seems to be: 1) the morally right one, and 2) the common-sense one. In these cases doing what’s “right” can really backfire. In my next few posts I’ll explain these so they make sense, along with some other avoidable mistakes. But by now it should be clear—nothing takes the place of actual legal advice about your own unique situation from an experienced attorney. So, make your day and mine by coming in to see me. Avoid ever having to say “if only I’d gone in sooner.”