October 18, 2017

Bankruptcy Courts will NOT tell you…

Debt-settlement firms may do more harm than good.

Debt-settlement firms offer to play hardball with creditors and whittle outstanding balances by up to 75 percent.  They bill their services as an alternative to bankruptcy, but in many cases they can hurt more than they help.  Debt-settlement firms are unregulated, for-profit entities that require regular payments before taking any action on a consumer’s behalf.


Don’t settle with Mom first or fudge the condo in Boca.

Many debtors naturally want to pay back friends and family before filing for bankruptcy.  This is the worst action a debtor can take.  Any money paid to an insider, an insider includes relative, friends and acquaintances, or business partners, within a year (sometimes 2 years) of filing bankruptcy is recoverable by the trustee.  The recipient of the funds must return the funds to the trustee and if they do not do so voluntarily, the trustee has the power to sue them in bankruptcy court and require the funds to be repaid.  No debtor should wish such consequences on a friend or family member.


A more serious infraction involves trying to hide assets from the court.  Hiding assets is a bankruptcy crime punishable by imprisonment, fine or both.  The first principle that applies when filing bankruptcy is that “there are no secrets in bankruptcy”.  The judge, the trustee, the Bankruptcy Administrator and the debtor’s attorney will all know as much about a debtor’s finances and business activities as the debtor does.  If a debtor is not prepared to make full and complete disclosure of all money, assets, debts, income, and past and contemplated business activities in the near future, then the debtor should not consider filing bankruptcy.      


Timing is everything.

When an individual owes more than he or she owns or has the ability to pay on a timely basis, it’s time to consult a bankruptcy lawyer.  However, consulting an attorney does not mean bankruptcy is necessarily the next step.  It is sometimes advisable to wait until filing is to the debtor’s best advantage.  The attorney in analyzing the debtor’s financial situation will be able to advise not only as to which chapter to file under but when filing would be to the debtor’s advantage.  Those debtors with no hope of repaying their debt have little to gain by waiting. In such cases filing as soon as possible is generally the best course of action.