What do I need to Know before I File for Bankruptcy?

Under the bankruptcy laws, it is acknowledged that, at some time prior to filing for bankruptcy, you formed the intent to file for bankruptcy.  Therefore, once you have made the decision to file bankruptcy, continuing to use credit is considered an abuse of your creditors.

The 90-Day Rule

Under the Bankruptcy Code, as a general rule, if you use credit either in the form or cards, payday loans, or a line of credit for “luxury goods,” within 90 days prior to filing your bankruptcy petition with the court, you have abused your creditors and that debt is not discharged. As soon as you decide you are going to file for bankruptcy, stop using credit.  While you cannot use credit cards, you can use debit cards, cash, personal checks, and money orders to make purchases and pay your bill, just no more credit.

The flip side to the 90-Day Rule is: you can stop paying your creditors – except the secured creditors whose property you want to keep, e.g., the car or house.  It’s OK to pay secured creditors if you want to keep the property.  All other creditors, no.  This includes “insiders,” i.e., friends, family and family friends.  A trustee can set aside such payments as “preferences.”

The Look-Back Rule

While protecting your bank account is considered a good idea, selling/transferring and gifting money and property can jeopardize your filing.  The Bankruptcy Court has the “Look-Back Rule.”  The court can “look back” in time and review the sale or transfer of money or nonexempt property prior to the bankruptcy filing.  Selling or transferring money or property is risky.  If you sold, gifted, or otherwise transferred property such as a house, personal property, or a large sum of money bankruptcy trustee may look back at that transfer/sale/gift to determine if it is legitimate. The time the court has to “look back” varies.

If the court determines you fraudulently transferred or sold your property they have the right to recover the property and they may even deny your discharge.  When determining your intent, in general, the trustee asks these questions:

  1. Is the property exempt or nonexempt?
  2. When was the transfer made?
  3. Did the debtor receive fair value for the property
  4. How did the debtor spend the $$ made from the sale?
  5. Why did the debtor make the sale/transfer/gift?

If you are considering bankruptcy, you should always seek the advice of a competent bankruptcy attorney.  A bankruptcy attorney can guide you through the process and help you make the best choices for your situation.

In Albuquerque and throughout New Mexico, Giddens & Gatton Law,amp; Jacobus P.C.,  has bankruptcy attorneys who offer expert handling of Chapter 7, Chapter 11, Chapter 12 and Chapter 13 bankruptcy cases and can specifically provide advice as to bankruptcy and its alternatives.

The New Mexico firm represents many debtors and creditors in Albuquerque, Santa Fe, Taos, Raton, Farmington, Gallup, Grants, Roswell, Los Lunas, Placitas, Belen and the rest of New Mexico. Contact Giddens & Gatton Law,amp; P.C. at (505) 271-1053 to set up an appointment or visit the firm’s website at giddenslaw.com. Giddens & Gatton Law,amp; P.C. is located at 10400 Academy Road N.E., Suite 350 in Albuquerque, New Mexico.