When reviewing your financial information, advising you about your options, and preparing to file a bankruptcy case, even the most careful bankruptcy attorney may not discuss everything that might be important for you. There is just too much information that has to be covered in every case to concentrate on things that may not apply in your particular situation. But some of these things may have an important impact on how your case comes out.
Here are the top five pieces of information that even good attorneys may leave out.
1. Not everyone who files Chapter 7 gets a discharge.
If you decide to file Chapter 7, there are a few special situations that can prevent you from discharging any of your debts:
- If you lie on your schedules;
- If you have transferred or hidden something you own in order to prevent creditors from taking it;
- If you refuse to cooperate with the trustee’s inquiries about your assets;
- If you don’t have the basic information about your financial matters;
- If property mysteriously comes up missing and you can’t explain what happened to it; or
- If you have filed Chapter 7 within the preceding 8 years.
Fortunately, these situations are quite rare. In over 25 years practicing bankruptcy law in Lexington, no Chapter 7 client of mine has been denied a discharge.
2. You may be able to get rid of debts even if you forget to list them.
If you file bankruptcy, you must list all your debts. You will be asked under oath whether you have done so, and that is a serious matter. But if you inadvertently omit someone, you may still be OK.
In Chapter 7, a debt is not discharged if the creditor doesn’t get notice about your case in time to file a claim. However, in “no-asset” cases, where the trustee cannot locate any property to sell off for the benefit of creditors, no claim deadline is ever set. Most bankruptcy courts, including the one in Columbia, hold that in such cases, even unlisted debts are discharged.
Of course, it’s best not to rely on that rule. Make sure you tell your lawyer about everyone to whom you owe any money.
3. Putting property in your spouse’s name (or parent’s or child’s) is a bad idea.
When I first started practicing law, a lawyer in Batesburg or Newberry might advise people facing debt problems to transfer a car or house to someone else for protection. That not only is unethical but can cause huge problems for the client.
The people who wrote the Bankruptcy Code were not stupid. They knew about tricks like this. So they inserted a provision allowing bankruptcy trustees to reverse fraudulent transfers and recover the property for the benefit of creditors. This provision includes transfers actually intended to keep property away from creditors and those for which the debtor did not receive a reasonable value in return, even if not intended to defraud.
To make matters worse, once the trustee recovers the property, you can’t protect the property with exemptions that otherwise would apply. It’s just gone. And the real kicker is that (as discussed above), such a transfer can actually prevent you from receiving a discharge. So not only is such a maneuver unlikely to succeed; it can also hurt you badly.
Most bankruptcy attorneys will ask you whether you have transferred anything in the years leading up to your filing. It is vital to disclose any such transfers fully and honestly. Sometimes it is possible to fix such a problem if you act before you file, but if your lawyer learns about it later, that generally means bad news for you.
4. It’s also a bad idea to increase your debts shortly before you file.
The Bankruptcy Code says you cannot discharge 19 different special categories of debt. These include most taxes, student loans, marital obligations, fines, etc. One important category is debts that are incurred fraudulently. This includes debts you incurred never intending to repay.
The Code actually sets out certain bright-line situations where it is presumed you incurred a debt fraudulently. If you charge luxury goods or services worth more than $600 from any one creditor in the three months before filing, or if you take cash advances totaling over $875 within 70 days before (including the use of courtesy checks on credit card accounts), the court must assume you did this with no intention to repay. And even if you don’t violate any of those benchmarks, if you incur a debt after you began considering bankruptcy, it may not be dischargeable.
5. If something comes up that you have not discussed with your lawyer, the fees may go up.
Your attorney is required to quote you a fee within five days after he begins advising you. But this fee is based on the information you have given him at that point. If something new comes up later, the retainer agreement you sign will typically allow the attorney to charge more.
In Chapter 7, for example, a creditor may file what is called an adversary proceeding asking the court to declare your debt to it cannot be discharged. While we usually try to look out for such issues before we file, it is never certain that a creditor will take this step until well after you file. Understandably, our court considers this a separate service for which the lawyer may charge an additional fee.
Because Chapter 13 cases go on for much longer than Chapter 7s, such additional developments arise more frequently. We commonly see motions for relief from the automatic stay, motions to dismiss, motions to incur debt or to substitute collateral, and the court generally permits additional fees for these steps. However, your Chapter 13 plan will usually include a little “cushion” of additional payments to cover such routine additional services.