Credit - Pre-Bankruptcy Tips, Part 3
By Nate Perrott
DO: Pay Your Basic Expenses-And Your Lawyer
Also, you'll need whatever cash you have for other things. Some people let the rent slide so they can send something to that persistent fellow calling from Discover. You have to take care of your family first and that means keeping a roof over your head. Of course, you should continue to pay your regular monthly expenses, such as the rent and utilities. If you are planning to keep a car that's being financed, you should try to stay current with that bill as well.
Besides the necessities, a better use of your money right now is to pay your lawyer. Once you've decided that you're going to file bankruptcy, you'll need some legal help. Ideally, you will actually hire an attorney to handle the case for you. Even if you decide to try to go it alone, at some point you should seek professional guidance. Even if all you do is pay for a one-time consultation, you'll need some cash to do that. You've got to prioritize and put your limited resources where they will do the most good.
DON'T: Show a "Preference" to One Creditor
Another factor in paying creditors right before filing involves something called preference. The court doesn't want you to play favorites and pay a chunk of money to some creditors and not pay the rest. It could reach back before the filing and take the money back from that creditor and then spread it around to everyone. This doesn't happen very often but it's something to consider in the days before filing.
It's assumed that a payment is an improper preference if it's more than $600 and made to a single creditor in the ninety days before filing. It doesn't matter if the payments were made all at one time or more than once during the ninety days. If the total is more than $600 in the time period, the payments could be considered to be a preference.
The time period in question is much longer if the creditor is considered to be an "insider," for example, a close relative. In those cases, you have to tell the court if you paid a total of $600 or more for a whole twelve months before filing. So it's not a good idea to pay back your mom a large amount just before you file bankruptcy. The court could very well take it back. You might be wondering how the court would know if you did that. It will because you have to tell it. You sign your bankruptcy papers under penalty of perjury. The worst thing you can do is lie.
By the way, if you can, you should keep your car payment current during this time. It probably adds up to more than $600 in three months. But since the car loan company is a secured creditor, the court won't take those payments back. It only acts when one unsecured creditor gets a large advantage over others in the same category.
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Pre-Bankruptcy Tips Part III
Page updated 2:50 PM Thursday 9/11/2014