Huge Disclaimer – I am not an attorney, so this is not legal advice. These are simply my experiences and things that I learned along the way, gathered in one place.
Experience One: You should look at a 4-6 month window before filing if you have any “warts” at all. Why so long? Well, that gives you time for
- stopping payment on credit cards, etc and banking the money for an attorney and food
- getting past the 90 days of presumed abuse on credit card purchases
- making a decision on valuable assets – keep them or not, sell them for fair market value and make exempt purchases, etc
- making SMART decisions on reaffirmation of vehicle or home loans
- setting yourself up for a smooth transition to a tight budget you can live with, and life after BK - because you don’t want a repeat of the same mistakes.
Experience Two: Check with your attorney as you make your preparations. In the good ol’ bays before bankruptcy “reform,” attorneys were given a lot of room to advise you on how to fit a square peg through a round hole. Not any more. They are in a strange position, trying to help you through a situation that they cannot legally or ethically advise you on the finer points. They can suggest, and you can read between the lines of their suggestions. But you need to check in with them as you go along. Retain them early, and spend the next few months polishing your BK file.
Experience Three: The Crazy-Straw Logic of Bankruptcy (CSLB) will likely drive you insane, or at least will test your sense of humor, your better judgment, and will certainly make you wonder “who makes this stuff up?” Because, for most people, bankruptcy preparation simply defies common sense. Some examples:
- If you are in deep trouble, earning more money can make your problems worse
- Spending your “reserve cash” from your savings, IRA, and 401(k) plans, however noble your effort in paying bills, just got you into deeper trouble.
- Paying something off (car, loan, credit card) – or even making your continuing payments – will only cause you more effort and grief, and might just get the Trustee bent out of shape as well.
- Valuable assets are bad, but selling them improperly is worse, and hiding them or giving them away is worst of all.
Experience Four: Know your exemptions, and learn how the Trustees in your area see those exemptions. This is where your GOOD attorney comes in handy. Will the Trustee bless, for instance:
- purchasing a car so your equity in it is now exempt?
- Using credit cards to buy and stockpile 6 months of necessities (food, provisions, etc) and then stopping payment on those cards 90-120 days before filing?
- Selling an asset at “fair market value” to make exempted purchases? And how does the Trustee determine what “fair market value” is in your area?
Your attorney will likely have good answers to these situations, and may even try to aim for getting “the right Trustee” for your situation. But, don’t bet on it. I recommend that you consider what is at risk by using a worst-case scenario. Trustees are all different, and they have good days and bad just like you. Get one sideways, and your day will be very bad.
So, prepare early and work with your attorney in solving any exemptions issues you might have. The goal is to make your file blend in with the thousands of others crossing the Trustee’s desk. If it smells funny, looks funny, isn’t complete, or parts of your filing tell different stories, I guarantee that you will get singled out for further review. Not that you will lose, but you are just adding to your pain by doing something “goofy.”
Experience Five: Back up your decisions. By this I mean :
- Document your decisions. If you sold an asset for fair market value, keep copies of how you decided what fair market value was. I recommend two or three independent sources of value.
- Keep receipts. All of them. Even the ones where you took a lot of cash back at the grocery store in the thought that you will stuff it in an envelope under your mattress and no one will ever know.
- Leave a paper trail. Deposit checks rather than cash them – the Trustee will likely ask where the money went. If you have deposit slips and purchase receipts, that will be plenty of evidence. But if it appears that you are trying to hide something, you will get caught.
The Trustee will allow for some level of common-sense decision-making on your part up to the time of filing. They might ask, they might not ask – but if they do, you need to have a solid explanation backed by solid evidence.
DO NOT, however, do the Trustee’s homework for them. I have seen attorneys file “explanations” that have caught the eye of the Trustee and have caused the very avalanche they were seeking to avoid. If the Trustee has a question on your filing, you will get a notice before your 341 (or during it) to explain and show evidence. If you have both, you will likely get the benefit of the doubt. But I feel it is best to let the Trustee ask rather than offer too much information up front. As long as you have an answer, you have nothing to lose.
Experience One: You should look at a 4-6 month window before filing if you have any “warts” at all. Why so long? Well, that gives you time for
- stopping payment on credit cards, etc and banking the money for an attorney and food
- getting past the 90 days of presumed abuse on credit card purchases
- making a decision on valuable assets – keep them or not, sell them for fair market value and make exempt purchases, etc
- making SMART decisions on reaffirmation of vehicle or home loans
- setting yourself up for a smooth transition to a tight budget you can live with, and life after BK - because you don’t want a repeat of the same mistakes.
Experience Two: Check with your attorney as you make your preparations. In the good ol’ bays before bankruptcy “reform,” attorneys were given a lot of room to advise you on how to fit a square peg through a round hole. Not any more. They are in a strange position, trying to help you through a situation that they cannot legally or ethically advise you on the finer points. They can suggest, and you can read between the lines of their suggestions. But you need to check in with them as you go along. Retain them early, and spend the next few months polishing your BK file.
Experience Three: The Crazy-Straw Logic of Bankruptcy (CSLB) will likely drive you insane, or at least will test your sense of humor, your better judgment, and will certainly make you wonder “who makes this stuff up?” Because, for most people, bankruptcy preparation simply defies common sense. Some examples:
- If you are in deep trouble, earning more money can make your problems worse
- Spending your “reserve cash” from your savings, IRA, and 401(k) plans, however noble your effort in paying bills, just got you into deeper trouble.
- Paying something off (car, loan, credit card) – or even making your continuing payments – will only cause you more effort and grief, and might just get the Trustee bent out of shape as well.
- Valuable assets are bad, but selling them improperly is worse, and hiding them or giving them away is worst of all.
Experience Four: Know your exemptions, and learn how the Trustees in your area see those exemptions. This is where your GOOD attorney comes in handy. Will the Trustee bless, for instance:
- purchasing a car so your equity in it is now exempt?
- Using credit cards to buy and stockpile 6 months of necessities (food, provisions, etc) and then stopping payment on those cards 90-120 days before filing?
- Selling an asset at “fair market value” to make exempted purchases? And how does the Trustee determine what “fair market value” is in your area?
Your attorney will likely have good answers to these situations, and may even try to aim for getting “the right Trustee” for your situation. But, don’t bet on it. I recommend that you consider what is at risk by using a worst-case scenario. Trustees are all different, and they have good days and bad just like you. Get one sideways, and your day will be very bad.
So, prepare early and work with your attorney in solving any exemptions issues you might have. The goal is to make your file blend in with the thousands of others crossing the Trustee’s desk. If it smells funny, looks funny, isn’t complete, or parts of your filing tell different stories, I guarantee that you will get singled out for further review. Not that you will lose, but you are just adding to your pain by doing something “goofy.”
Experience Five: Back up your decisions. By this I mean :
- Document your decisions. If you sold an asset for fair market value, keep copies of how you decided what fair market value was. I recommend two or three independent sources of value.
- Keep receipts. All of them. Even the ones where you took a lot of cash back at the grocery store in the thought that you will stuff it in an envelope under your mattress and no one will ever know.
- Leave a paper trail. Deposit checks rather than cash them – the Trustee will likely ask where the money went. If you have deposit slips and purchase receipts, that will be plenty of evidence. But if it appears that you are trying to hide something, you will get caught.
The Trustee will allow for some level of common-sense decision-making on your part up to the time of filing. They might ask, they might not ask – but if they do, you need to have a solid explanation backed by solid evidence.
DO NOT, however, do the Trustee’s homework for them. I have seen attorneys file “explanations” that have caught the eye of the Trustee and have caused the very avalanche they were seeking to avoid. If the Trustee has a question on your filing, you will get a notice before your 341 (or during it) to explain and show evidence. If you have both, you will likely get the benefit of the doubt. But I feel it is best to let the Trustee ask rather than offer too much information up front. As long as you have an answer, you have nothing to lose.
12/15/10 - 341 COMPLETED 
2/17/11 - DISCHARGED & CLOSED 
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