What You Don’t Know Can Hurt You in Bankruptcy

There’s a lot to consider when you’re thinking about bankruptcy. Unfortunately, for many people, the big obstacle to making informed decisions is that you don’t know what you don’t know. The best source of reliable advice about your specific situation is an experienced Los Angeles bankruptcy attorney. In this post Borowitz & Clark offers an overview of some of the most important issues that get overlooked when people file bankruptcy or make decisions about their bankruptcy filings before getting legal advice.

1. California offers two different sets of bankruptcy exemptions. One set of exemptions offers more significant protection for your home, but less flexibility for other assets. The other set of exemptions offers lower limits in specific categories, but also provides a wildcard exemption to be used for any type of asset or assets. The right exemptions for you will depend on the things you want to protect, and in some cases you may have to make choices based on your highest priorities.
2. Chapter 7 bankruptcy isn’t right for everyone. Chapter 7 is by far the more popular type of consumer bankruptcy, and it makes sense to want to discharge as much debt as possible. But determining the right type of bankruptcy for you means considering income, assets you want to keep, any secured debt you need to manage through bankruptcy, and more. An expert California bankruptcy lawyer can help you decide which type of bankruptcy best protects you best.
3. Bankruptcy fraud may not mean what you think it means. You probably think of “fraud” as intentionally cheating someone, but bankruptcy has its own set of rules. You could put your case in jeopardy–or worse– by making mistakes such as taking on debt knowing you’re going to file bankruptcy, paying off one debt while skipping payments on others, or giving property to a friend or relative, among others.
4. You can’t pick and choose which debts to list. Often, people filing for bankruptcy will mention that they don’t want to include a credit card they’ve had for decades that is in good standing or a debt owed to an employer, friend or family member. You are required to list all debts and assets in your bankruptcy petition and schedules, and you aren’t allowed to give preference to certain creditors.
5. That little “disputed” checkbox can be important. You may not think it matters much whether you agree that you owe a debt or whether the creditor has the amount right if you’re going to discharge it in bankruptcy anyway. But you’re submitting your bankruptcy petition and schedules under oath, and listing a debt without marking it disputed can be considered an admission that you owe the debt. That can come back to haunt you if your petition is dismissed, or may be used as evidence in other proceedings like a divorce case.
6. Money and property you don’t have yet can still be considered part of the bankruptcy estate. One of the most common assets people filing bankruptcy overlook is a tax refund that hasn’t come due yet. For example, if you file bankruptcy in November, you’ll already be entitled to most of whatever tax refund you’ll be due for the year. That chunk of your tax refund is already an asset and, unless you can exempt it, is fair game for the trustee to take for distribution to creditors. Trustees in the Central District of California regularly pursue these returns. Other examples include money someone owes you, a claim for an injury you suffered (whether the claim has been filed or not) and a lottery ticket you bought the day before you filed that turns out to be a winner.
7. If you file bankruptcy alone, your spouse may still be responsible for the debt. When just one spouse files bankruptcy, separate debt of the filing spouse may be discharged entirely. Joint debt is only discharged for the filing spouse. The non-filing spouse remains liable, though the creditor generally can’t collect against community property as long as the filing spouse is alive and the couple remains married. Separate property of the non-filing spouse is fair game, as is property they receive in a divorce or gain sole possession of when the filing spouse passes away.
8. Chapter 7 bankruptcy doesn’t protect your co-signer. If you’re discharging a debt in Chapter 7 bankruptcy and a friend or family member co-signed for you, you should know that the bankruptcy discharge will only wipe out your obligation. Your co-signer will still be legally responsible for the debt, and their credit will be impacted by any missed payments before, during or after your bankruptcy case. The co-signer may be able to avoid a black mark on their credit by making the payments, but the sooner they know you can’t make the payment, the better.

These are just some of the most common examples of important mistakes Borowitz & Clark see people who want to file bankruptcy make regularly. The best way to ensure that you have complete and accurate information about the issues that may impact your bankruptcy case and how to best protect your assets in bankruptcy is to talk to an experienced Los Angeles bankruptcy lawyer.

At Borowitz & Clark, we’ve helped thousands of people get out from under debt and regain control of their financial lives. To learn more about bankruptcy and whether it may be the right solution for you, schedule a free consultation right now. Just call 877-439-9717 or fill out our contact form.