Thursday, October 23, 2014

“I Don’t Want to Include That in My Bankruptcy”

When speaking with a prospective client in our free, initial consultation, I am frequently told that they don’t want to include a certain debt or asset in the bankruptcy for one reason or another.  Unfortunately, as I tell everyone, bankruptcy is all or nothing. When filing bankruptcy, a debtor must disclose and include all debts and assets, and a debtor swears under oath that all debts, income, and assets have been disclosed in the bankruptcy petition. With that being said, this does not necessarily mean a person filing bankruptcy will lose everything in the bankruptcy.

Most people concerned about including everything in the bankruptcy worry that they will lose collateral, like their house or car, if it is included in the bankruptcy, especially if they owe money on the collateral. Under most circumstances, a person filing bankruptcy is not at significant risk of losing their vehicle or house. If money is owed on the collateral, a debtor can continue paying for the collateral and/or reaffirm the debt to reinstate the contract.

Another concern in Chapter 7 is the concern that the Trustee will liquidate a debtor’s possessions. Since the implementation of Federal Exemptions, most assets are exempt. Those items that are not exempt may be retained in exchange for a cash settlement paid to the Trustee to avoid liquidation.
Lastly, a very common concern for those considering bankruptcy is including a debt they don’t wish to be included. This can include a particular credit card they like, an overdrawn bank account, or a friend or family member who loaned them money in a tight spot. Again, bankruptcy is all or nothing, and every debt must be listed. Once some people find this out, they try to pay the debt off before filing, but this may cause more harm than good. A Trustee can avoid and recover large payments to general unsecured creditors, like credit cards, that exceed $600 within 90 days of filing the case, and payments exceeding $600 to insiders and family members made within ONE YEAR of filing the case. How the Trustee recovers these large payments is by suing the person that received it, and redistributing the funds to other creditors. This is called a preference payment.

While there may be a significant amount of anxiety with including all assets and debt, talking to an experienced bankruptcy attorney can limit that anxiety and the negative consequences of filing bankruptcy. Call us today at 503-352-3690 or visit our website to schedule a free initial consultation.

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