There’s good reason to tidy up. The popular show on a major streaming service has made tidying up a national sensation. Many people try to cleaning up finances before bankruptcy but that isn’t always a good idea. In fact, don’t waste your time cleaning up finances before bankruptcy and especially before you consult with a bankruptcy attorney.
Doing this could result in you wasting money or losing options under the bankruptcy code if you make any last minute changes to your financial situation. Your situation has the most options available to you if your attorney sees your financial picture in its totality. What looks like a mess to you may look like major opportunities and significant advantages to your bankruptcy counsel.
There’s a potentially high cost to trying to tidy up.
The most sickening feeling I get when consulting with a client is when they tell me they just paid off a debt to a family member, borrowed against their retirement to satisfy debts, or paid off taxes in lieu of something else while cleaning up finances before bankruptcy. None of these things should be done without seeing a competent bankruptcy attorney.
Paying off debts to family
Paying off our family seems like the right thing to do. We want to take care of our family, especially when they took a risk by loaning us money. People do this for many different reasons. Some do it to hide the fact that they had to file bankruptcy while others do it to potentially protect assets from the bankruptcy process before you file.
The most likely outcome of this situation is that paying off these people (friends, family, business partners) will actually hurt you and them more than it helps anyone. The Trustee can sue family members and friends you’ve paid off for during the preceding year to recover the money you paid them. These payments are often known as preferential payments and they are not legal under the bankruptcy code. Under bankruptcy, there must be fair payments to ALL creditors, not just the ones you want to pay off.
Often, the exemptions allowed in Georgia will protect more of your money than you expect. Once your case is concluded, you can pay off your family or friends without any kind of adverse consequences. In other words, hold onto your money until AFTER you’ve consulted with an attorney.
Most settlements before bankruptcy are a waste
One of the most troubling scenarios I’ve seen in recent times involved an older couple who had spent more than 5 years trying to pay off credit card debt through a debt settlement agency. They did this in lieu of meeting with a bankruptcy attorney. What they didn’t realize was that despite all the thousands of dollars they had spent, not all of their debts were being paid through the settlement. They had to file bankruptcy anyways and they got no credit from the money they spent trying to pay off their credit cards. During this time they struggled to pay their property taxes and student loans and they ultimately fell into default as well.
The better option for that would have likely been to file bankruptcy and use the excess money they had to retire the tax debt or pay off their student loans as those two types of debts are not dischargeable under bankruptcy.
Generally speaking, your bankruptcy will be no simpler, less expensive or less damaging to your credit based on the number of creditors you have. If you have to file bankruptcy, reducing the number of creditors you have isn’t going to matter to your case.
Tax debt can actually be useful
Generally speaking, people usually think owing the government is bad business. However, in your bankruptcy case it could actually be an asset if your income is above the average in your state. This helps with the means test that helps determine if you make too much money for a Chapter 7. You can deduct the tax debts you owe from your income in order to qualify for a Chapter 7 in certain cases. The same thing goes for mortgage arrearages and property taxes you owe on your home. These types of debts can be useful in getting you into the type of bankruptcy you want to file. If you eliminate this type of debt before you consult with an attorney and it leaves us with fewer tools to adjust your income when working with the means test.
Stop trying to clean things up
Don’t make the mistake of cleaning up finances before bankruptcy if you haven’t consulted with an attorney. We need to see all the pieces, broken or not. Don’t try to sweep debts under the carpet or pay them off before you consult with a competent bankruptcy attorney. The attorneys at Harmon and Gorove have decades of experience in helping people clean up their financial mess and get their life back. Contact us today for a free consultation to see how we can help you.