Monthly Archives: January 2012

What Should I Avoid Prior to Filing for Bankruptcy Protection

By Ryan C. Wood

In addition to the previous article, How to Avoid Fraud Charges in Bankruptcy, there are certain things that you should not do prior to filing for bankruptcy, as it may inconvenience you, or hinder or delay your case.

Banking

When it comes to banking, most consumers are loyal to their banks.  The most common phrase I hear is, “But I’ve been banking with “X” Bank for more than “X” years!  They have been very good to me.”  These banks are so good to their customers that they are allowing them to take out credit cards that are linked to their bank accounts.  What the consumers don’t realize is that if they are behind on their payments, the banks have the ability to offset the debt by taking the money from their customer’s bank accounts.  They are able to do so because the contracts signed (which most people don’t read) allow them to do so.  Thus, consumers are surprised to find that when it comes time to send off the rent check or mortgage payment, they don’t have the money to do so because their bank already has a chunk of their money.  To avoid this scenario, do not bank at an institution where you owe money.  Some consumers think they are safe if they do not have the funds in their bank accounts.  This is not always true.  Banks can still offset the debt, and then you would be considered overdrawn, and now you would owe bank fees and bounced checks due to non-sufficient funds.

Paying Down Debt

If you were trying to avoid bankruptcy, then paying down your debt is a great idea.  However, if you already know that your only available option is to file bankruptcy, you should not be paying back your creditors, especially your family and friends, whom are considered “insiders.”  Paying creditors back is considered a “preference.” If you have paid back more than $600 to an “insider” in the past year, the trustee has the option of going after the person you paid back to get the money back for the bankruptcy estate, if the funds are significant enough.

Receiving Inheritance

If you believe you are listed as a beneficiary in a will, trust, or life insurance policy, and you are about to receive the inheritance within the next six months, you may not wish to file for bankruptcy.  Any proceeds received within 180 days of the filing of your bankruptcy petition are considered to be a part of your bankruptcy estate.  If you receive a substantial inheritance, there may not be enough exemptions to protect the inheritance, and in a Chapter 7, the inheritance could be used to pay off your debt to your creditors.  Thus, if you think you will receive a substantial inheritance, you may be better off trying to negotiate with your creditors instead.

Lying to Your Attorney

If you retained the services of an attorney to proceed with your bankruptcy case, it is imperative that you do not lie to them about your finances.  You should not hide your assets from your attorney, nor should you lie by omitting certain important information regarding your situation to your attorney.  Your attorney cannot protect you if they do not know about your problem.  If there was an issue in your bankruptcy case, you do not want your attorneys to be the only one in the room surprised by the problem.  Your attorneys are not mind readers, they would not know that they need to help you if you do not tell them.

If you need the help of an experienced bankruptcy lawyer or bankruptcy lawyer in Union City, call us today at 877-9NEW-LIFE or 877-963-9543 to schedule a free consultation.

Can I Get Rid of a Judgment Lien When Filing a Chapter 7 Bankruptcy?

By Ryan C. Wood

In a Chapter 7 bankruptcy you are not be able to avoid junior mortgages or equity lines of credit (considered to be consensual liens) on your property even if your house is underwater.  Treatment of underwater liens is different in a Chapter 7 case then a Chapter 13 case.  However, the good news is that you can avoid a judgment lien in a Chapter 7, thereby removing the judgment lien from your real property.

What is the difference between a consensual lien and a judgment lien?  A consensual lien is a bargained for lien – this is normally referring to liens like your mortgages or equity line of credit.  You agreed to have a lien recorded against your property in exchange for financial benefit (money loaned to you).  A judgment lien is not consensual.  This type of lien is normally recorded against your property after your creditor obtains a judgment against you.  Thus, the rule in a Chapter 7 bankruptcy is that you can avoid a judgment lien since it was involuntarily placed on your property and you cannot avoid a consensual lien since you agreed to have it recorded against your property.  The courts do not want to interfere with any contracts that you voluntarily entered into.  You can strip underwater junior liens and equity lines of credit in a Chapter 13 bankruptcy, but not a Chapter 7 bankruptcy.

If you file a Chapter 7 bankruptcy and you have judgment liens that you would like to avoid from your property, you have authority to do so under 11 U.S.C §522.  In order to avoid the judgment lien, the lien needs to impair an exemption.  Exemptions are what protect your property that has value from becoming part of the bankruptcy estate.  So if you have a lien that combined with all the other senior liens on your property and your exemptions on the property exceed what your house is worth, you can avoid that judgment lien and avoid it from your property.  Even if your property is underwater and there is no equity to exempt you can still apply an exemption and avoid the judgment lien.  This is a jurisdictional issue that must be researched in your jurisdiction though.  The majority of the courts indicate that you can still avoid a judgment lien even if no exemptions are being impaired.  The lien only has to impair an exemption that the debtor could have claimed.  Remember, only nonconsensual liens like a judgment lien can be avoided under Chapter 7 bankruptcy, not consensual liens like mortgages.

If you have any questions regarding avoidance of judgment liens in a Chapter 7 bankruptcy or would like to speak with an experienced bankruptcy lawyer or bankruptcy attorney in Fremont, please call us today at 877-9NEW-LIFE or 877-963-9543 today for a free consultation.