Involuntary Bankruptcy Definition

Involuntary bankruptcy is a legal avenue for creditors to force a person or business into bankruptcy proceedings when they cannot collect debts. Unlike voluntary bankruptcy, where debtors initiate the process, involuntary bankruptcy occurs when creditors petition the court.

Involuntary bankruptcy proceedings can be a powerful tool for creditors seeking to recover debts from reluctant debtors. However, the process is complex and laden with challenges.

Conditions for Involuntary Bankruptcy


  • There must be a minimum number of creditors.
  • The total debt owed must meet a specific threshold.
  • The debtor retains the right to challenge an involuntary bankruptcy filing, ensuring due process.

Initiating Involuntary Bankruptcy

Involuntary bankruptcy is rare and significantly differs from the more common voluntary bankruptcy. In voluntary bankruptcy, debtors file for bankruptcy to reorganize or eliminate their debts. In contrast, creditors instigate involuntary bankruptcy when they believe the debtor can pay but refuse to do so.

The process begins when a creditor files a petition with the bankruptcy court. The petition outlines the creditor’s claims and specifies whether they seek Chapter 7 or Chapter 11 bankruptcy. It is crucial to note that Chapter 12 and Chapter 13 bankruptcy options are not available under involuntary bankruptcy.

The petitioning creditors also must state the reason for initiating the involuntary bankruptcy, such as the debtor’s failure to pay debts on time, the seizure of the debtor’s property by another entity to enforce a lien, or the creditor holding a non-contingent claim against the debtor.

Filing an Involuntary Petition

Creditors must meet specific criteria to file an involuntary petition under Chapters 7 or 11 of the Bankruptcy Code. The debt owed or such debts must be at least a certain amount, and such debtor’s debts must generally be delinquent in their payments. If the debtor has 12 or more creditors, at least three must join the petition.

Once the petition is filed, the debtor has the opportunity to respond. The involuntary bankruptcy works, and proceedings will continue if the debtor fails to respond. However, in most cases, the debtor will file an objection to the petition, essentially contesting the involuntary bankruptcy. This objection transforms the case into a formal legal dispute regarding liability proceedings.

Debtor’s Response and Court Decision

Once filed, the debtor has 21 days to respond. If they do not respond or the court rules favor the creditors seeking involuntary bankruptcy, an “order for relief” is issued, placing the debtor into bankruptcy. Alternatively, debtors can convert their bankruptcy procedure from an involuntary case to a voluntary one.

The number of qualifying creditors plays a crucial role. If fewer than 12 creditors exist, a single creditor can file an involuntary bankruptcy petition. However, if there are more than 12 creditors, a minimum of three must agree and join the petition to move forward.

Response Hearing

If the debtor responds to the petition, a hearing is scheduled. During this hearing, the court evaluates the arguments of both parties. The presiding judge will decide whether the involuntary bankruptcy case should proceed or be dismissed.

In Favor of the Debtor

If the judge rules in favor of the petitioning creditor filed against the debtor, the bankruptcy is dismissed. Sometimes, the court may order the petitioning creditor to cover the debtors’ legal costs and fees.

In Favor of the Creditor

If the judge rules in favor of the creditor, the involuntary bankruptcy can proceed. This decision marks the formal beginning of the involuntary bankruptcy process for the debtor.

Bona Fide Dispute: Understanding the Legal Term

“Bona fide,” derived from Latin, translates to “good faith” in English. It holds significant meaning in legal contexts and signifies honesty, authenticity, or genuineness. When someone is referred to as a “bona fide purchaser” or a “bona fide holder,” it implies that they acted in good faith, without any knowledge of circumstances that might question their right to hold a particular title, property, or claim.

In essence, being a bona fide party suggests innocence or lack of awareness about any facts that could raise doubts about their legitimate ownership, right, or entitlement in a given situation. A bona fide individual or entity debtor is generally considered genuine and trustworthy in their actions, transactions, or claims, and they are often protected under the law due to their honest intentions and lack of fraudulent or deceptive behavior.

A bona fide dispute in the context of billing and financial transactions refers to a genuine and valid disagreement or claim made by one party regarding specific charges or amounts billed by another party. To be considered a bona fide dispute, several conditions must be met:

  1. Specificity: The disputing party must identify the exact amount in dispute as to liability only. This amount should be clearly stated in the dispute notice.
  2. Explanation: The disputing party must provide a clear and comprehensive explanation for the dispute. This explanation should outline the basis for the disagreement with the charges.
  3. Supporting Documentation: The disputing party must support their claim with written documentation substantiating it. This documentation serves as evidence and must be provided to strengthen the validity of the dispute.
  4. Itemization: The notice must be itemized if the dispute involves multiple charges or accounts. It should specify the account number(s) to which the disputed amount applies.
  5. Usage Disputes: In cases involving disputes related to usage, additional details such as billing date, invoice number, Billing Account Number (BAN), and supporting usage records must be provided.
  6. Circuit Disputes: For disputes involving circuits, specific information like billing date, invoice number, BAN, circuit identification number(s), and USOC(s) must be included. A detailed description of the dispute is also required.

Exclusions from Bona Fide Dispute:

– Refusal to pay without written documentation is generally not paying and is considered a bona fide dispute.

– Refusal to pay other amounts owed during the dispute resolution process is not classified as a bona fide dispute.

– Claims for punitive damages are not regarded as bona fide disputes within the defined context.

– Bona fide disputes do not include actual calls made by the customer or unauthorized third parties and such claims as fraudulent calls.

Considerations for Creditors

Given these challenges, creditors must carefully evaluate the situation before initiating involuntary bankruptcy. A thorough analysis of the debtor’s financial state, existing disputes, and potential defenses is essential. Strategic filing, with an eye on the unique circumstances that justify bankruptcy relief, can improve the chances of a successful involuntary petition. Before pursuing involuntary bankruptcy, creditors must carefully evaluate the situation. Several critical questions must be addressed:

Creditor Qualifications

Creditors must have a non-contingent, undisputed debt to file an involuntary petition. Acquiring a debt solely for bankruptcy purposes is not allowed.

Debtor InvestigationCreditors are responsible for thoroughly investigating the debtor’s financial situation contingent 

on liability. This includes understanding the debtor’s operations and transactions with other entities.

Other Creditors

The debtor’s assets and the number of creditors play a role. A single creditor can file the petition if the debtor has fewer than 12 creditors. If more than 12, at least three creditors must join.

Potential Outcomes

Creditors need to consider the possible scenarios. If successful, the bankruptcy case may lead to liquidation or reorganization. However, the process can be time-consuming and costly. Creditors should also know their standing relative to other creditors in distributing recovered assets.

  • Asset Liquidation: Both types can lead to liquidating assets to settle debts, impacting the debtor’s financial stability.
  • Credit Impact: Bankruptcy significantly affects credit scores, challenging securing future financing or credit.
  • Financial Future: Both voluntary and involuntary bankruptcies have long-term consequences, necessitating careful consideration before pursuing bankruptcy.

Alternative Solutions

Considering involuntary bankruptcy’s costs, risks, and potential outcomes, creditors must weigh it against alternative solutions. Negotiating a settlement outside of court might be more beneficial, especially for debtors who are financially struggling but still operational.

In summary, involuntary bankruptcy is a complex legal process that creditors and bankruptcy courts can initiate to compel debtors to address their outstanding debts. However, it requires careful assessment and consideration of alternative options to determine the most suitable course of action.

Voluntary Bankruptcy vs. Involuntary Bankruptcy Petition

Voluntary bankruptcy occurs when an individual or a business willingly files for bankruptcy. The debtor, facing financial distress and unable to meet obligations, opts for bankruptcy relief. This choice is often made to restructure debts or gain relief from overwhelming financial burdens.

In the United States, voluntary bankruptcy can be filed under different chapters of the bankruptcy code.

Chapter 7: Involves liquidation of non-exempt assets to pay off creditors, followed by the discharge of remaining debts.

Chapter 13: Allows the debtor to propose a repayment plan spanning three to five years, facilitating gradual debt repayment.

Involuntary bankruptcy is initiated by the debtor’s creditors, compelling the debtor into bankruptcy proceedings. Creditors resort to involuntary bankruptcy when they believe the debtor possesses sufficient assets to cover debts but neglects repayment efforts.

In the United States, involuntary bankruptcy can be filed under specific chapters of the bankruptcy code.

Chapter 7: Similar to voluntary Chapter 7, it involves liquidating assets to settle debts.

Chapter 11: Pertains to businesses, allowing for reorganization and debt repayment under court supervision.

Both voluntary and involuntary bankruptcies are serious financial decisions. While voluntary bankruptcy offers debtors a chance to restructure or relieve their debts, involuntary bankruptcy places control in the hands of creditors, ensuring debtors meet their financial obligations.

Regardless of the type, individuals and businesses must weigh the implications carefully, as these decisions have a lasting impact on financial stability and creditworthiness. A bankruptcy lawyer can help a person or company get to the other side successfully.

While involuntary bankruptcy remains a potent tool for creditors, recent legal developments have heightened the risks. Careful assessment of the debtor’s situation, legal strategy, and understanding of the nuances of bankruptcy law are crucial for creditors aiming to maximize recovery while minimizing legal challenges and financial penalties. As the legal landscape evolves, creditors must adapt strategies to navigate this complex terrain effectively.

Car Financing While in Chapter 13 Bankruptcy Filing

Car Financing While in Chapter 13 Bankruptcy Filing

When you file for Chapter 13 bankruptcy, a form of repayment bankruptcy known as a reorganization, your credit score will be negatively impacted, and this information will remain on your credit report for seven years. In a Chapter 13 bankruptcy, you adhere to a court-approved repayment plan that spans three to five years, during which you cannot incur new debt.

However, the court understands that unexpected circumstances can arise, including purchasing a vehicle before completing the Chapter 13 repayment plan you file. If you have the funds to buy a car outright, you can do so without involving the court. In this case, you might need to update your bankruptcy schedule, a process best handled with guidance from your attorney. This option allows you to obtain a car despite being under a Chapter 13 repayment plan.

Car Loans and Chapter 13

Car Loans and Chapter 13

Chapter 13 bankruptcy involves a repayment plan lasting three and a half years up to 5 years. In contrast, Chapter 7 erases debt (a discharge) in approximately four months but impacts your credit for ten years. During Chapter 13, you can explore new debt opportunities, unlike in Chapter 7.

In Chapter 7 or 13, an automatic stay stops collection attempts, allowing you time to manage your property and finances. In Chapter 13, your bankruptcy attorney creates a repayment plan, enabling you to catch up on missed payments or adjust your car loan by reducing the interest rate or if your car’s value is less than what you owe. If the car loan is older than two and half years old, then you can seek a cramdown, which allows you to repay the car loan balance based on the car’s value and not the outstanding balance when the case was filed.

How Chapter 13 Benefits You and Your Vehicle

How Chapter 13 Benefits You and Your Vehicle

Chapter 13 hits the pause button on those pesky debt collectors, giving you breathing room to sort out your finances. A Chapter 13 plan is filed within 14 days of the case being filed. You can use this plan to catch up on missed car payments or adjust the interest rate on your loan.

Now, let’s talk about the perks of Chapter 13 when it comes to paying back to cars:

Stopping Repossession

Once you dive into Chapter 13, this magical thing called an “automatic stay” kicks in. It’s like a shield that stops creditors from snatching away your car or other property, even if they tried before you filed for bankruptcy.

Catching Up on Your Monthly Payment

Chapter 13 lets you play catch-up. You can include those missed payments in your repayment plan. Keep up with regular payments, and your car stays right where it belongs – with you.

Reducing Car Loan

If your car isn’t worth as much as you owe, Chapter 13 can rescue you. It might shrink your loan to match your car’s value, leaving the extra debt unsecured.  Again, this can only be accomplished if your car loan is over 2.5 years old.

Need another car while you’re in Chapter 13? No worries! You can work with a unique lender through a dealership. Once you get the green light, the bankruptcy court gives you the thumbs-up with an “Order to Incur Debt.” That means you can go ahead and get your new wheels!  You only need the bankruptcy court’s permission to incur new debt if the loan exceeds $2,000.00.

Getting a New Car in Chapter 13: Step-by-Step Guide

Getting a New Car in Chapter 13: Step-by-Step Guide

If you need a new car while going through Chapter 13 bankruptcy, don’t worry – there’s a way to make it happen. Working with subprime lenders through particular finance dealerships, you can secure an auto loan and drive away in your new vehicle. 

Here’s how to navigate the process smoothly:

Create a Budget For Your Car Loan Payments

First things first, assess your finances. Ensure you can comfortably handle the cost of the used vehicle, complete payment plan, new car payment, and your existing debt repayments. If necessary, collaborate with your attorney to tweak your repayment plan.

Shop Around for a Car in Your Budget

Explore cars that fit your financial limits. Look for car options that align with what you can comfortably afford in your current vehicle, including the monthly payment and other related expenses.

Find a Lender

Look for lenders who specialize in assisting individuals in active bankruptcy. Be prepared for higher interest rates and rates due to your income and lower credit score. Your bankruptcy attorney or local credit union can guide you to lenders willing to work with your situation.

Make a Down Payment

Save up for a down payment. A larger down payment can reduce the money you need to borrow, and the loan amount might improve your chances of approval.

File a Motion

Prepare a motion explaining the necessity of a vehicle loan for the new car and the financing plan payment amount required. Your attorney will assist you in filing this motion with the court. It’s a crucial step in gaining approval for the car loan.  Some bankruptcy courts will allow the Debtor to avoid a motion and simply agree with the Trustee for the loan through a stipulation to incur debt.

Complete the Purchase

Once the court approves, you’re all set to finalize the purchase. Keep up with your loan payments, ensuring they align with your income and financial obligations. With the court’s consent, due diligence, and careful financial planning, you’ll soon be behind the wheel of your new car, moving forward with confidence.

Challenges to Getting a Car During Bankruptcy Chapter 13

Challenges to Getting a Car During Bankruptcy Chapter 13

Navigating the process of obtaining a car loan during Chapter 13 bankruptcy involves several crucial steps, each demanding meticulous attention.

Initial Dealership Visit: Commence your journey by visiting a dealership. Explore the range of vehicles that align with your needs and financial capacity.

Transparency with Salesman: Honesty is paramount. Candidly inform the car salesman about your Chapter 13 bankruptcy status. The lender will inevitably discover this information when scrutinizing your credit report.

Essential Information: Provide the salesman with the hypothetical monthly payment, interest rate, and the total amount you intend to pay or borrow. This information is the foundation for the court motion I must file as your legal representative.

Court Motion Filing: Expect a meticulous process. The court motion filing involves a comprehensive compilation of your financial details. Understand that this procedure, including the necessary court hearings, typically spans 2 to 5 weeks. However, expedited “emergency” hearings can be arranged within 2 to 3 weeks in emergencies such as a recently totaled car.

Judicial Approval: Unless there are compelling reasons, such as severe delinquency in your existing plan payments or an unwarranted pursuit of an excessively costly vehicle, the judge overseeing your case will likely approve your loan request.

Finalizing the Purchase: Once the Judge signs the Order of Court approving your loan, you can complete the purchase. However, adhere to the local regulations within your Bankruptcy District.

Please be aware that this arrangement necessitates patience, as creditors may have to wait approximately three months or less than five years before receiving payments. It’s essential to understand and comply with your Local Rule unless a waiver from your Judge is obtained, making it imperative to channel your car loan through your new Chapter 13 plan.

These steps require precision and adherence to the legal framework, ensuring a smooth and compliant process within the intricate landscape of Chapter 13 bankruptcy. A bankruptcy lawyer can guide you through this journey, offering expertise and support at every crucial juncture.

Bankruptcy Tip

Post-bankruptcy, improving your credit score is vital for future financial stability. Consider obtaining a secured credit card and monitor your credit regularly. Set a budget for car-related expenses, including gas and insurance. A larger down payment can improve your approval chances.

Exploring Options Instead of Applying for a New Car Loan

Exploring Options Instead of Applying for a New Car Loan

If securing a car loan proves challenging, consider these alternatives:

Wait and Rebuild the Credit

Delay car purchases until your credit improves, leading to better loan terms.

Pay in Cash

Save and pay for the car in cash to avoid the cost of taking out a loan from a car lender entirely.

Pay in Cash

In summary, Chapter 13 bankruptcy provides vital tools for managing car loans. The automatic stay offers a crucial pause on repossession attempts, allowing time to stabilize finances. Returning the car or adjusting payments helps ease the debt burden.

While securing a new car loan in Chapter 13 requires careful planning, it’s possible with a budget, suitable lenders, and a down payment. Alternatively, waiting to rebuild credit or paying in cash are viable options if loan approval proves challenging.

Chapter 13 offers a pathway to financial recovery, empowering individuals to regain control over their car loans and pave the way for a stable future.

Dismissal Vs. Discharge

Chapter 7 Dismissal Vs. Discharge

When initiating bankruptcy proceedings for the first time, it is imperative to grasp the lexicon employed during the procedure. Many individuals often find themselves perplexed by the disparity between “dismissal” and “discharge” within the context of bankruptcy processes.

1. Dismissal Of A Bankruptcy Case

Dismissal Of A Bankruptcy Case

Dismissal typically denotes that the court has halted all proceedings within the primary bankruptcy case and any related adversary proceedings, and a discharge order has not been issued. Dismissal can transpire if a debtor voluntarily requests it and meets the criteria for voluntary dismissal.

Alternatively, dismissal can transpire without the debtor’s consent if the court mandates dismissal on its own accord or if a trustee or creditor files a motion for dismissal, which the court subsequently grants.

Dismissals in Chapter 13 vs. Chapter 7

Dismissals in Chapter 13 vs. Chapter 7

In different bankruptcy chapters, Chapter 13 bankruptcy typically involves higher costs and a lengthier process than Chapter 7 bankruptcy.

In Chapter 13, individuals must craft a repayment plan outlining how to repay a portion of their debt and adhere to this monthly payment plan for three to five years. Consequently, Chapter 13 bankruptcy cases are more susceptible to being dismissed before receiving a discharge.

If a Chapter 13 filer fails to make a payment as stipulated in their repayment plan, it can lead to the dismissal of their case. The most common reason for dismissal in Chapter 13 cases is missing a payment on the repayment plan.

Voluntary Bankruptcy Dismissal

A debtor can submit a request for voluntary dismissal of their bankruptcy case. However, whether the court grants this request depends on various factors, including the specific chapter of bankruptcy filed and the debtor’s previous bankruptcy history.

Restarting A Bankruptcy After Dismissal

Restarting A Bankruptcy After Dismissal

You can restart the bankruptcy process if your case is dismissed. To do so, you’ll need to file a Motion to Reinstate. This is a written request submitted to the Bankruptcy Court, asking them to cancel or set aside the dismissal order.

When filing a Motion to Reinstate, explaining how you’ve rectified the deficiency or error that led to the dismissal is essential. Failure to address this issue within the timeframe stipulated by your local court rules may result in the closure of your case.

If your bankruptcy case is closed, you must file a motion to reopen the claim or initiate an entirely new bankruptcy case to proceed.  When initiating a new case within one year of the prior case dismissal, it will require you to file a motion for a stay extension within 30 days of the case filing. This will allow you to keep the bankruptcy in place after the 30 days expire.

What Does ‘Dismissal Without Prejudice’ Mean?

What Does ‘Dismissal Without Prejudice' Mean?

In certain instances, it is feasible to reinstate a bankruptcy shortly after its termination. You can initiate a new bankruptcy filing if a substantial period has elapsed. Generally, courts issue terminations “without prejudice.”

In this context, “without prejudice” signifies that the terminated case does not preclude you from commencing a fresh bankruptcy proceeding. Regrettably, if the termination is “with prejudice,” you may be prohibited from pursuing bankruptcy or compelled to await a prescribed timeframe before resuming bankruptcy proceedings. Cases entailing bankruptcy fraud may not permit debtors to commence a new case.

If you elect not to file bankruptcy again, you must rectify the issues that precipitated the termination before initiating another case. During this interim period, creditors retain the prerogative to communicate with you and institute legal measures to recover the outstanding debt.

Call An Experienced Bankruptcy Attorney

Call An Experienced Bankruptcy Attorney

Given the intricacies associated with bankruptcy cases, securing legal representation is paramount. With a proficient legal advocate at your side, you can preemptively evade terminations, as they can deftly navigate each phase of the bankruptcy filing procedure on your behalf, mitigating the common errors individuals often commit while embarking on the bankruptcy journey.

2. Bankruptcy Discharge

Bankruptcy Discharge

Typically, the primary objective of commencing bankruptcy proceedings is to effectuate debt discharge. A discharge transpires when the bankruptcy court issues a decree proclaiming that you are no longer legally obligated to reimburse the discharged debt.

After a discharge, most unsecured creditors are precluded from instigating legal actions to reclaim any remaining debt they owe. They are also forbidden from establishing communication via any means, encompassing written correspondence, personal interaction, and telephonic contact, about the discharged debt.  When a creditor violates the discharge by seeking to collect the debt subject to the discharge, you may reopen the bankruptcy case to pursue a motion against the creditor for the discharge violation.  If successful in the motion, the Court may grant the Debtor punitive damages and attorney fees to deter future creditors from violating the discharge injunction.

Debts Discharged in Bankruptcy Court

Debts Discharged in Bankruptcy Court

Not all kinds of debt can be erased in bankruptcy. Identifying which debts can be forgiven can help you save time and money. You can request forgiveness by filing bankruptcy for unsecured loans, car accident claims, credit card balances, medical bills, overdue utility payments, lease obligations, and personal loans.

Some debts are usually not forgiven in bankruptcy, except in particular situations. These include student loans, child support, alimony payments, certain taxes, fines imposed by the government, debts from fraud, and fines and restitution from criminal activities.

Chapter 7 and Chapter 13 Bankruptcy Payment Obligations

The timing of debt discharge hinges upon the category of bankruptcy under which you have filed. Chapter 7 bankruptcy typically absolves your debts a few months after issuing your bankruptcy decree. Conversely, Chapter 13 bankruptcy cases adhere to a distinct structure.

Under Chapter 13, you partake in a debt reorganization scheme, necessitating partial repayment of your debt through a predetermined installment plan over an extended duration. Upon fulfilling your payment arrangement, any remaining dischargeable debts are then absolved.

Closing Of A Bankruptcy Case

Closure signifies the conclusion of all activities associated with the main bankruptcy case. This encompasses the resolution of all motions and submitting a statement indicating the fulfillment of all trustee responsibilities if a trustee was appointed.

However, closure does not inherently imply that a discharge has been granted unless all procedures connected to determining eligibility for discharge have been finalized.

If a bankruptcy case is closed without a discharge, typically due to an individual debtor’s failure to timely submit a Certificate of Completion of Instructional Course Concerning Personal Financial Management, the debtor must file a Motion to Reopen the Case.

Additionally, a bankruptcy case may receive a discharge, but the case can remain open for various reasons, such as the Chapter 7 Trustee seeking to liquidate bankruptcy estate assets post-discharge.

Closing Without A Discharge

Closing Without A Discharge

Cases may be closed without a discharge when the debtor fails to fulfill the necessary debtor education requirements, which are essential conditions for receiving a discharge. Additionally, if you stumble at the final stage of the debt relief process, your case can be closed without a discharge. This may occur if your initial filing needs to be submitted within the required timeframe.


In conclusion, understanding the distinctions between bankruptcy dismissal, discharge, termination, and closure is essential when navigating the complex bankruptcy process. Dismissal typically halts proceedings without a discharge, while discharge relieves you of certain debts.

Terminations and closures can occur for various reasons, often due to errors or missed requirements, and may or may not involve discharge. A bankruptcy attorney can provide crucial guidance in these situations, helping you navigate the process effectively and avoid potential pitfalls.

Common Bankruptcy Mistakes

Let’s delve deeper into some critical aspects to provide you with a comprehensive understanding of avoiding the most common bankruptcy mistakes.

Mistakes To Avoid With Personal Debts

Repaying Family Members

The law treats family members like any other creditor regarding repaying friends or a family member’s debts. The bankruptcy trustee can make a claim for repayments made to family members within one year of filing for bankruptcy. Maintaining a fair and equitable approach to repaying debts is essential, even when dealing with relatives.

Protecting Retirement Accounts

Your retirement accounts are generally safeguarded in bankruptcy proceedings. You can eliminate your debts by declaring bankruptcy, while protecting your retirement accounts.

A lawyer who knows the bankruptcy code can help you keep any valuable asset in an ERISA-qualified retirement account intact. It’s essential to resist the temptation to liquidate these accounts to pay off credit card debt, as doing so could jeopardize your long-term financial security.

Taking on New Debts

When you recognize that your existing debts are overwhelming and unmanageable, it’s a significant mistake to continue taking on new debt. There is a better time to use your credit cards or incur additional obligations. Doing so only exacerbates your financial situation and may complicate your bankruptcy case. Also, keep a close watch on your taxes.

Be Careful With Credits When You File Bankruptcy

Property Transfers

Be cautious about transferring property out of your name within two years of filing for bankruptcy, especially if the intent behind such transfers is to hinder, delay, or defraud creditors. Bankruptcy trustees can undo such transfers and recover assets and can even go back 6 years in states like Michigan, potentially causing more complications in your bankruptcy case. You can protect your assets if you avoid these common bankruptcy errors by seeking sound legal counsel.

Credit Card Usage

Once you decide to file for bankruptcy, exercising caution with your credit cards is crucial. Debts incurred for luxury goods or services exceeding $600 within 90 days of filing a bankruptcy petition and cash advances over $750 within 70 days may not be dischargeable in bankruptcy. This means that even though you’re seeking financial relief, irresponsible credit card usage during this period could lead to a less-than-ideal fresh start and a possible lawsuit also known as an adversary proceeding in the bankruptcy case.

Second Mortgages

If you own real estate, think twice about bankruptcy law before taking out a second mortgage or a line of credit to pay off credit card debt.

Bankruptcy often allows you to keep valuable assets, including your home. Taking such actions puts your home at risk when there are alternative ways to manage your debt through bankruptcy.

Common Mistakes Before Bankruptcy Court

Honesty with Your Bankruptcy Attorney

Be completely transparent and honest with your bankruptcy attorney throughout the bankruptcy process. Your attorney can only provide you with the best advice and strategies based on the information you provide. Failure to disclose assets or relevant information could lead to severe consequences, including asset loss, case denial, fines, or even imprisonment.

Court Proceedings

It’s a common misconception that an experienced bankruptcy attorney deciding to file for bankruptcy will automatically halt any ongoing collection cases against you. Until your bankruptcy case is officially filed, these collection proceedings continue.

It’s essential to stay engaged in any pending legal matters and communicate with your attorney about your intentions.

Hiding Assets

Concealing assets is a severe mistake that can take away your financial freedom forever. You must demonstrate to the court that you cannot cover your outstanding debts.

If your assets could be sold to repay an ordinary creditor, as in Chapter 7 bankruptcy, you must be prepared to do so if you wish to proceed with bankruptcy. Attempting to hide assets through bankruptcy fraud is no minor mistake. It can severely affect your eligibility for financial relief and cause you to be federally indicted for bankruptcy fraud.

Remember, I’m here as your friend and lawyer to support you every step of the way. Don’t hesitate to reach out if you have any questions or need assistance navigating your financial situation.

Your fresh financial start is attainable, and together, we can work towards achieving it while avoiding these common bankruptcy pitfalls.

An Experienced Bankruptcy Attorney Can Help Filing Bankruptcy

An experienced bankruptcy attorney plays a pivotal role in guiding individuals through the complex process of filing for bankruptcy. When facing overwhelming debt, many individuals might resort to what seems like a futile attempt to alleviate their financial burden.

However, they need professional guidance to avoid making critical mistakes, such as running up credit card bills or attempting to hide assets. In the eyes of the bankruptcy court, creditors are not treated as ordinary creditors, and these actions can raise red flags.

One of the critical areas where a bankruptcy attorney’s expertise shines is in addressing collection cases pending against their clients. These ongoing legal actions can be daunting, but an experienced attorney knows how to navigate them while preparing for the bankruptcy filing.

They ensure that their clients understand that filing for bankruptcy doesn’t automatically halt collection cases and guide them on approaching these situations strategically.

A skilled bankruptcy attorney can also help clients avoid pitfalls like fraudulent transfers. They understand the nuances of bankruptcy law and can provide valuable advice on asset protection and property transfers that comply with legal requirements.

By working closely with an attorney, individuals can make informed decisions that protect their assets and increase their chances of successfully discharging their debts through bankruptcy.

Ultimately, having the guidance of an experienced bankruptcy attorney can make a profound difference in the outcome of a bankruptcy case, helping individuals achieve the fresh financial start they seek.