If you are thinking about bankruptcy, you might consider filing it yourself and not paying an attorney. However, many things can go wrong if you file without a lawyer.
Filing Too Soon
There are many reasons why a person should wait to file a chapter 7 or chapter 13 bankruptcy case.
There are bankruptcy laws that are esoteric, which no one would know unless they are a bankruptcy law expert. Some of the reasons why a debtor (person filing) should wait to file for bankruptcy protection are explained below.
If a debtor paid any unsecured creditor more than $600 in total, within three months prior to the bankruptcy filing, the trustee may be permitted to sue the creditor for the funds paid. There may be numerous reasons why someone does not want the trustee to pursue the creditor for the funds.
However, sometimes this is not an issue for the debtor, who does not care. If this concerns the debtor, he may wish to wait to file the bankruptcy petition sometime in the future.
During the one-year period prior to the bankruptcy filing, if a debtor paid back a relative’s loan in an amount totaling $1,000 or more, the trustee may be permitted to sue the relative for the funds. The trustee may add all of the payments that were made to the relative during the entire one year prior to the filing. In this situation, a debtor may wish to wait to file until this situation is no longer an issue. People that are not familiar with this law will unknowingly allow a trustee to file a lawsuit against their relative.
A creditor may sue a debtor within the chapter 7 case and request that the creditor’s debt not be eliminated by the bankruptcy filing, for various reasons. A creditor may file such an action if they believe that the debtor incurred debt prior to the filing, which appears to be fraudulent, per the bankruptcy code. A debtor that receives a very large loan immediately prior to the filing may appear to be fraudulent. The same laws apply to a person who incurs substantial credit card debt immediately prior to the filing.
Some examples of fraud are clear, but most are unclear. A person who put $15,000 on their credit card for a Cancun vacation two days prior to the filing is clearly fraudulent. However, a person who puts $8,000 on their credit card, for the same vacation, four months prior to the filing and after four payments were made, is less clear. The question is, when is the right time to file?
Filing May Not Be Necessary
There may be a situation when a bankruptcy filing will not benefit someone.
A person may not meet the chapter 7 criteria because they earn too much income. However, this same person may not earn sufficient income to receive the necessary chapter 13 benefits. Also, a debtor that files for chapter 13 protection may be required to make large trustee payments that are impossible to pay.
Also, the debtor may not be aware of certain debt that is not eliminated in bankruptcy, such as various types of tax debt, student loans, or a debt owed to a governmental entity.
Is Property Protected In A Chapter 7
The ability to keep personal property and real estate in chapter 7 is based on exemptions. Exemptions are a list of values that apply to each piece of personal property and real estate. If the amount of the exemption that applies to specific property is more than the property’s value, the debtor may keep the property. If a piece of property or real estate is not completely exempt, the trustee may be permitted to sell the property.
All states have a list of their own exemptions. Also, most states allow the debtor to use their own state’s exemptions or the federal bankruptcy code exemptions. Other states may only allow a person to apply their state’s exemptions and not the bankruptcy exemptions. Typically, the applicable exemptions are based on the laws of the state where the debtor lives, or the state where the debtor resided during the approximate two and a half years prior to the bankruptcy filing.
If a debtor is not careful about applying the exemptions, he could lose property from the trustee’s sale.
Filing The Incorrect Chapter
A person may unknowingly file the incorrect bankruptcy chapter, causing irreparable harm. For example, a debtor could lose a house in a chapter 7 case, which could have been kept in a chapter 13 case.
A person may prefer to file a chapter 13 case and pay back a portion of their debt, instead of dealing with numerous chapter 7 issues that may result in the case’s dismissal. In other situations, filing a chapter 7 instead of a chapter 13 may result in the inability to eliminate certain debts.
There are additional benefits of filing a chapter 13 that do not apply to a chapter 7. For example, certain types of marital debt may only be eliminated in a chapter 13 and not a chapter 7. Also, in various circumstances, a low monthly chapter 13 trustee payment may be worth the sizable debt that will be eliminated in a chapter 13.
Improper Completion of the Bankruptcy Petition
If a debtor is unaware of how to complete the bankruptcy petition, his case may be dismissed or thrown out of court. In other words, a person may meet the chapter 7 criteria, but may appear to not meet the criteria, due to improperly completing the petition. Also, amending the petition may be problematic.
A chapter 13 petition that is improperly prepared could result in the inability to pursue the intended benefit of the filing. A mistake could result in having to make a much higher monthly trustee payment as well.
Seeking counseling from an experienced bankruptcy lawyer may prevent an irreversible mistake that is caused by filing by yourself.