Bankruptcy Pitfalls to Avoid
Filing for Chapter 7 bankruptcy in Ohio offers a way for people overwhelmed by debt to find relief and start fresh. However, navigating through the bankruptcy process can be complicated and full of pitfalls for individuals who choose to go through it without the help of a lawyer. Without consideration and following the rules and procedures that govern Chapter 7 bankruptcy debtors may face various challenges and negative consequences. These challenges can include losing assets due to exemptions or inadequate planning as well as legal complications arising from mistakes or omissions on bankruptcy paperwork. In addition, creditors may dispute the dischargeability of debts which could lead to prolonged battles and increased expenses. To minimize these risks and ensure an experience with bankruptcy it is highly recommended that debtors seek assistance, from a bankruptcy attorney who can offer valuable legal expertise and support throughout the entire process.
Losing Property in bankruptcy
Ohio and federal law allow you keep a certain amount of property that your bankruptcy Trustee can’t touch. These are called bankruptcy exemptions. Different types of property have different exemptions. One huge pitfall that debtors can face is losing property to the bankruptcy trustee. In a Chapter 7 bankruptcy, the trustee will try to recover any assets that you can’t exempt and use them to pay off your creditors. If you have property that you cannot exempt, or that has too much equity, you may lose it. For instance, if you have a vehicle that has more equity than you can exempt, you may be ordered to turn over the vehicle for the trustee to sell. You could lose your house if there’s too much equity in it. It is especially important with real estate that you own but don’t live in. There is no exemption and your Chapter 7 trustee is likely to sell the real estate to pay your creditors.
Preferential payments before bankruptcy
Paying creditors before filing bankruptcy could, depending on the circumstances, by considered a “preference”. In essence, that means that you’ve chosen to pay certain creditors over other creditors. The Trustee has the right to retrieve, or “claw back” those payments to the creditor to re-distribute amongst all the creditors. If the preference payments were to a credit card company, it’s usually not a problem. The trustee will pursue the credit card company and you won’t be adversely affected.
A more common situation, however, is when a debtor has paid back a family member before filing. The trustee has the same right to go after that family member to get back the money the debtor repaid them. In many cases, that money has already been spent and is not readily available. This can create real problems for innocent parties. Preference payments can bring collection efforts and even lawsuits against the family member who was repaid. Before filing, it’s important to know if there have been any preferences and to know the consequences to all parties involved.
Fraudulent Transfers before bankruptcy
In Ohio, any property that has been transferred by the debtor within four years of filing could be considered a fraudulent transfer. It doesn’t mean that there was fraudulent intent, but it can create real problems for debtors and those who have received property. Like preferential payments, the trustee can seek to recover that property, liquidate it and distribute the proceeds to the creditors.
One common situation is where a debtor has transferred a vehicle to a friend or family member within four years of filing. If the vehicle is of little value, the trustee is unlikely to spend the time to pursue it. However, if the trustee sees a chance to recover assets, they can go after the property or the person who received it.
Another situation is where a debtor has given cash to someone prior to filing. Fraudulent transfers can also happen where people don’t expect it. Even if the debtor transfers a partial interest in property, it can be considered a fraudulent transfer. For instance, if a debtor has real estate and adds a spouse to the title (giving them a one-half interest), the transfer of that interest could be considered a fraudulent transfer.
As you can see, fraudulent transfers can be complicated and unforeseen by many debtors. It’s important to speak with an experienced attorney who can address these issues and deal with them before you file your case.
Failure to list all property in your bankruptcy
The bankruptcy code requires that debtors list all of their property on their bankruptcy schedules. For some debtors, however, the definition of property may not be apparent. Some things are obvious: your house, your car, your bank accounts. But others may not be so obvious. For instance, the right or potential right to receive money is an asset that must be listed. Such claims could include personal injury claims or employment claims. Although it can be hard to determine value, the trustee has a right to step into your shoes and recover or settle any claims for the benefit of your creditors. Failure to list potential claims can have severe consequences. For one, it can subject the debtor to sanctions, including having their discharge revoked. Also, you may not be able to pursue those claims later if they weren’t disclosed to the bankruptcy trustee.
Other property that may not be obvious are intellectual property and business property. Most debtors operate as sole proprietors or single member LLCs, so it’s important to disclose all of the business assets while filing. Again, failure to do so can have severe consequences.
Get Help Before Filing Bankruptcy
Although there are companies that portray the bankruptcy process as nothing more than filling out forms, in reality it’s much more complicated. There are real dangers that most debtors don’t know about and it’s important to speak to an experienced attorney before doing anything. Choosing the right attorney can make all the difference between real problems and a smooth process.
Losing Property in bankruptcy
Ohio and federal law allow you keep a certain amount of property that your bankruptcy Trustee can’t touch. These are called bankruptcy exemptions. Different types of property have different exemptions. One huge pitfall that debtors can face is losing property to the bankruptcy trustee. In a Chapter 7 bankruptcy, the trustee will try to recover any assets that you can’t exempt and use them to pay off your creditors. If you have property that you cannot exempt, or that has too much equity, you may lose it. For instance, if you have a vehicle that has more equity than you can exempt, you may be ordered to turn over the vehicle for the trustee to sell. You could lose your house if there’s too much equity in it. It is especially important with real estate that you own but don’t live in. There is no exemption and your Chapter 7 trustee is likely to sell the real estate to pay your creditors.
Preferential payments before bankruptcy
Paying creditors before filing bankruptcy could, depending on the circumstances, by considered a “preference”. In essence, that means that you’ve chosen to pay certain creditors over other creditors. The Trustee has the right to retrieve, or “claw back” those payments to the creditor to re-distribute amongst all the creditors. If the preference payments were to a credit card company, it’s usually not a problem. The trustee will pursue the credit card company and you won’t be adversely affected.
A more common situation, however, is when a debtor has paid back a family member before filing. The trustee has the same right to go after that family member to get back the money the debtor repaid them. In many cases, that money has already been spent and is not readily available. This can create real problems for innocent parties. Preference payments can bring collection efforts and even lawsuits against the family member who was repaid. Before filing, it’s important to know if there have been any preferences and to know the consequences to all parties involved.
Fraudulent Transfers before bankruptcy
In Ohio, any property that has been transferred by the debtor within four years of filing could be considered a fraudulent transfer. It doesn’t mean that there was fraudulent intent, but it can create real problems for debtors and those who have received property. Like preferential payments, the trustee can seek to recover that property, liquidate it and distribute the proceeds to the creditors.
One common situation is where a debtor has transferred a vehicle to a friend or family member within four years of filing. If the vehicle is of little value, the trustee is unlikely to spend the time to pursue it. However, if the trustee sees a chance to recover assets, they can go after the property or the person who received it.
Another situation is where a debtor has given cash to someone prior to filing. Fraudulent transfers can also happen where people don’t expect it. Even if the debtor transfers a partial interest in property, it can be considered a fraudulent transfer. For instance, if a debtor has real estate and adds a spouse to the title (giving them a one-half interest), the transfer of that interest could be considered a fraudulent transfer.
As you can see, fraudulent transfers can be complicated and unforeseen by many debtors. It’s important to speak with an experienced attorney who can address these issues and deal with them before you file your case.
Failure to list all property in your bankruptcy
The bankruptcy code requires that debtors list all of their property on their bankruptcy schedules. For some debtors, however, the definition of property may not be apparent. Some things are obvious: your house, your car, your bank accounts. But others may not be so obvious. For instance, the right or potential right to receive money is an asset that must be listed. Such claims could include personal injury claims or employment claims. Although it can be hard to determine value, the trustee has a right to step into your shoes and recover or settle any claims for the benefit of your creditors. Failure to list potential claims can have severe consequences. For one, it can subject the debtor to sanctions, including having their discharge revoked. Also, you may not be able to pursue those claims later if they weren’t disclosed to the bankruptcy trustee.
Other property that may not be obvious are intellectual property and business property. Most debtors operate as sole proprietors or single member LLCs, so it’s important to disclose all of the business assets while filing. Again, failure to do so can have severe consequences.
Get Help Before Filing Bankruptcy
Although there are companies that portray the bankruptcy process as nothing more than filling out forms, in reality it’s much more complicated. There are real dangers that most debtors don’t know about and it’s important to speak to an experienced attorney before doing anything. Choosing the right attorney can make all the difference between real problems and a smooth process.
