Bankruptcy in Arizona takes planning. Here are some Do’s and Don’ts before you file.
- Continue to make payments on vehicles you intend to keep. Creditors with liens secured by a car or truck can usually repossess the vehicle without notice to you anytime you are in default on your payments. It will ordinarily take longer for other creditors (including those secured by other property) to act on a debt that is in default.
- Give “friendly” creditors a security interest in non-exempt property. If you have to borrow money form a friend or relative you could give that creditor a security interest in the property that you own. For example, if you have a car that is not exempt and you are borrowing money from a relative, he or she could take a security interest in the car for the loan. This will reduce your equity in the car, and the likelihood that the trustee will take the car. It will also protect your relative by insuring that they will be paid from the proceeds if the trustee does take the car since he must pay off creditors secured by property that he takes.
*Caution: The loan must be a legitimate transaction, you must actually receive the money, and the security interest must be granted at the time the loan is made. You cannot give a security interest for a previous loan (antecedent debt). Giving a security interest to defraud creditors that could result in a denial of your discharge. All laws and formalities regarding secured transactions must be followed, such as placing the creditor’s name on the title for loans secured by vehicles and the recording of a deed of trust for loans secured by real property.
- Close bank accounts to banks you owe money to. If you have given money to a creditor your bank account information for an automatic debit from your account, you should close that account to prevent the creditor from continuing to debit your account. Of course, you should also notify the creditor immediately that you are revoking the authority to allow the creditor to debit from your account.
- Reduce the amount withheld from your pay for taxes. If you expect to get a tax refund, reduce your withholding so that you do not get a refund. Federal and state tax refunds are routinely taken by the trustee in a Chapter 7 case, and may effect plan payments in a Chapter 13.
*Caution: Don’t reduce the withholding for tax so much that you will have a big tax bill to pay.
- Borrow from or withdrawal 401k, IRA, and ERISA qualified savings and retirement plans to pay bills. Early withdrawal of these funds makes you liable for penalties and taxes that may not be discharged in bankruptcy, ERISA and 401K funds are exempt from creditors in bankruptcy, as are IRA funds in Arizona (except deposits made within 4 months before filing) and many other states. If you don’t use these funds, you are very likely to have them to draw on your after your bankruptcy.
- Borrow money on your home to pay unsecured debts such as credit cards, utilities, debt on surrendered or repossessed vehicles or medical bills.
If you take out a second mortgage on your home, you may be converting debt which would have been discharged in bankruptcy into debt which you will still have to pay in order to keep your home. These additional payments could be high enough to cause you to lose the home.
- Pay $600 or more to relatives or business associates who have lent you money. Payment of a total of $600 or more to an “insider” (which includes relatives and business associates) within one year before you file your bankruptcy is a voidable “preference.” The trustee may recover the money from the person that was paid and divide the money between all of your creditors. (Payment of $600 or more to any other creditor within 90 days before the case is filed is also a voidable preference.)
- Use credit cards when you know that you are planning to avoid paying those credit cards through bankruptcy. Using credit when you know that you cannot pay the bill or when you intend to avoid paying the bill by filing bankruptcy can be determined to be fraud and thus that amount of your credit card debt incurred under such circumstances can be held to be non-dischargeable and may result in an adversary proceeding in the bankruptcy case. You may have to pay the cost of defending such a lawsuit filed by the credit card company that will seek an order from the court that the credit card debts are not dischargeable.
- Put property you own into someone else’s name to avoid it being taken by creditors or the trustee. That kind of transfer is a fraud on creditors and can result in your discharge being denied. In addition, the trustee can take the property from the person to whom it was transferred.
Call 480-755-8000 to speak with our Arizona bankruptcy attorney today for immediate help.