Steps to consider with a Chapter 13 bankruptcy
For those who are most concerned about keeping their property when they file bankruptcy, Chapter 13 offers the best financial relief in U.S. Bankruptcy Court. However, they must first determine their eligibility for this type of court action.
Chapter 13 is called the wage earner's bankruptcy because debtors must have enough income to pay creditors in a monthly plan set by the court in addition to their necessary personal expenses. If they can’t cover both or if their debt is so high that it cannot be paid within five years, they may be better off with liquidation under Chapter 7.
If they meet the requirements of filing under Chapter 13, there are steps that legal experts advise people to take - or avoid - to prepare. For instance, property and other assets should not be transferred to friends, family or business associates to shield it from bankruptcy. Such actions could be viewed as fraudulent conveyances, which may cause the court to dismiss the case.
Although people have the right to represent themselves in a bankruptcy action, Chapter 13 is an intricate filing and usually fares better when an attorney presents the case. Either way, no financial or business records should be destroyed because that could also be seen as fraud.
Missouri attorney Mark Allen Roy recommends that debtors choose carefully which creditors are to be paid first before they file. "Some creditors - landlords, secured creditors and some utilities - should be paid under most circumstances. Conversely, if you pay a credit card debt that will eventually be discharged, you may be throwing money away," states his website.
People should also stop using credit cards in the months before filing bankruptcy because their most recent expenses will not be discharged by the court.
According to the Bankruptcy Abuse Prevention and Consumer Protection Act, an individual may not charge more than $550 to a credit card for items that are considered luxury goods or services within the 90 days prior to filing. Charges made for essential items such as emergency car repairs are not usually considered a violation.
In addition, during the 70 days prior to filing, no more than $825 may be taken out in cash advances, such as the use of credit card convenience checks, for any purpose.
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