Mistakes To Avoid When Preparing To File For Bankruptcy In Ohio

Bankruptcy is a chance at a fresh start and a clean financial slate. We’ve already discussed what to consider when preparing for your initial meeting with your Ohio bankruptcy lawyer. Now let’s look into the flipside of that–what not to do as you prepare to file for bankruptcy in Ohio. There are numerous ways to slip up prior to fully understanding the bankruptcy process, and your friends at Hausen Law are here to help you avoid those pitfalls and ensure that your petition to file chapter 7 or chapter 13 bankruptcy is accepted and that you don’t encounter unnecessary complications. Let’s get into it.

Avoid These Mistakes Prior to Filing for Bankruptcy In Ohio

With the help of an experienced bankruptcy attorney, you can bypass these common mistakes.

Not Considering Timing

Have you filed for bankruptcy previously? If it was in the recent past, you may not be eligible to file again for some time. For instance, if you have filed for chapter 7 bankruptcy, you will need to wait at least eight years before filing again. The time periods vary based on the type of bankruptcy originally filed, but the point remains the same–if you’ve filed in the past, it’s a good idea to double check with your Ohio bankruptcy lawyer to know if you are eligible to file again. 

Timing is also key if you know that you may be receiving a valuable asset, large income tax refund, lawsuit settlement, or sizable loan repayment within the next year as these could be used to repay your creditors, unless they can be protected by an exclusion. You’ll need to disclose these potential assets in your initial consultation paperwork, and your bankruptcy attorney can advise you as to the best course of action. Instead of going through the bankruptcy process, it could make more sense to wait and see if what you receive is enough to cover your debts and set you on a good financial track. If so, then there may be no need to file for bankruptcy at all, and other debt relief opportunities could be available to you. There’s no shame in filing for bankruptcy, but if you can avoid the process and the work it takes to repair your credit while still being able to stay financially afloat, that might be your better option.

Regarding receiving an inheritance or life insurance payout in Ohio, the chapter 7 bankruptcy 180-day rule dictates that these assets could automatically become part of the bankruptcy estate and could then be used by the bankruptcy trustee to repay creditors. The key date is the decedent’s date of death–if it falls before you file or within 180 days after filing, whether or not you have the funds in hand, the inheritance is considered yours and so will be considered part of your bankruptcy estate. Of course, you can’t know if someone will pass away in the months following your filing for bankruptcy. But if a family member is terminally ill and you know that you are in their will or listed on their life insurance policy, be forewarned that any inheritance may eventually be used to repay creditors, depending on timing. There really isn’t much to do here, it’s just good to be aware of all the facets of how bankruptcy law may impact your case.

For personalized advice, timing concerns are best discussed with a trusted and experienced Ohio bankruptcy lawyer.

Filling Too Soon

While we by no means advocate bankruptcy fraud or illegally and deliberately racking up debt prior to filing, there are certain scenarios in which waiting for debt to accrue prior to filing for bankruptcy is the most practical option. 

This could include folks who find themselves mid-treatment for a medical issue that has already accumulated debt they cannot afford to repay, and will continue to do so. If there is an end to treatment in sight and you were already planning to file due to the unmanageable debt, it could make more sense on several levels to wait to file for bankruptcy until treatments are finished and the final bills have come in. That way, you can include all of your medical debt in your filing and will not be stuck with future bills that once again strain and tax your financial health. 

If you are experiencing financial stress and considering filing for bankruptcy but then get word that you may be facing eviction, foreclosure, or car repossession, waiting until those threats have been made formal can help to forestall any action on the part of your creditors, thanks to the automatic stay. The same holds true if you are anticipating being unemployed due to no fault of your own, such as company restructuring or downsizing. If you are already experiencing financial hardship, it will only be more difficult to handle once you’ve lost your job. And since your income level will decrease significantly, you are more likely to pass the means test and be eligible for debt discharge in a chapter 7 filing. In various scenarios, it could be in your best interest to wait. 

Repaying Some Debt

If you are experiencing unrelenting financial stress and need relief, you could be tempted to repay a portion of your debt prior to filing for bankruptcy. You may even feel that you are backed up against a wall, and think about tapping into retirement funds or taking out a home equity loan to pay down debt. We would advise against that. 

While it is best to try and stay current on your bills, using retirement funds or a home equity loan could cause more problems than it solves. For one thing, retirement accounts are difficult to rebuild and often exact fines for early withdrawal. Worse still, they are also generally protected in a bankruptcy filing–you’d be losing them for nothing if you end up filing anyway. A home equity loan only adds to your financial burden, and if you are unable to repay it, you could then be staring down foreclosure. Both courses of action are risky and not recommended.

On top of those concerns, there is also the fact that any selective payments you make prior to filing for bankruptcy–also known as preference payments–could cause complications in your bankruptcy case. If these payments were made within a certain time frame the bankruptcy trustee could try to reclaim the funds and use them to collectively repay creditors. If payments were made to family members you owed, it could be very stressful for you and them to have the repayment clawed back. We understand that there is shame associated with holding debt, and that repaying certain debts prior to filing for bankruptcy can be appealing, but it is not a legally sound practice and should be avoided.

Careless Preparation

You already know what’s necessary to have on hand to fill out the paperwork needed prior to your initial consultation–we have a whole blog article about it. Included is a list of various documents you will want to have available to you so that you can accurately and thoroughly fill out necessary paperwork and forms. While your bankruptcy attorney is there to help you and will ask detailed questions to ensure that you have compiled the information necessary to file for bankruptcy in Ohio, they cannot force you to disclose everything. Misrepresentation of your financial information (whether intentional or not) can carry heavy consequences–you do not want to be accused of bankruptcy fraud. It’s best to be very thorough and gather all the paperwork you could possibly need prior to filling out any forms, which could stretch back two years or so. Working with a bankruptcy attorney ensures that you are well prepared.

Accumulating Debt, Loans and Cash Advances

Running up debt on credit cards is generally a bad idea prior to filing for bankruptcy. This is because it looks as though you’re acting in “bad faith,” and are trying to game the system. Bankruptcy is meant to help those in legitimate financial distress, not to erase the consequences of a shopping spree. Most credit card debt over $900 that’s owed to a single creditor and incurred within 90 days of filing is generally not going to be discharged. That said, if the debt is for necessities, emergencies or medical bills, courts will view that type of debt far differently. You weren’t living it up, you were just struggling to get by–that’s what bankruptcy was made for.

Cash advances of more than $1,250 made on a credit card to any single creditor within 70 days of filing for bankruptcy in Ohio will also typically not be discharged, as it is assumed that the money was used for luxury or frivolous expenses. If you can prove via a clear paper trail that the money went to pay for everyday necessities or unexpected repairs or medical needs, the story will likely be different. Keeping records is vital if this is your situation–stick to traceable, electronic transactions if possible. In general, remember that any large exchange of money soon before filing for bankruptcy is very likely to raise red flags. 

The same holds true for taking out loans. Unless you can prove that the money was needed to pay for things like everyday clothing, groceries, utility bills, rent, medical bills, gas or car repairs (or other necessities of life), that money may not be discharged in your bankruptcy filing.

Doing any of these things could make it appear that you planned to take advantage of or abuse the bankruptcy system. The Trustee or creditor could then challenge your bankruptcy claim, leaving you worse off in the end–without recourse but still responsible for repayment. Better to forgo unnecessary spending and speak with an experienced Ohio bankruptcy lawyer.

Suspicious Handling of Assets

Bankruptcy can be a bit of a painful process, but it’s ultimately a way to get out from under crushing debt and rebuild your financial health. You could even view it as a gift once you’re through the worst of it. So if the court gets wind of any action that could be construed as shifty or shady, they will not look kindly on you. This is especially true when it comes to the handling of assets. 

If assets are moved, sold at a loss, or transferred prior to filing for bankruptcy it will attract a great deal of suspicion. The assumption will be that you were trying to evade the bankruptcy system and prevent assets from being sold by the Trustee to repay creditors. The court could reply with a denial of a discharge or even impose potential criminal penalties. Assets will then be uncovered and included in your case, rendering the risk you took to be pointless.

Again, as is true with other situations that could look suspicious to the court, if you sold assets to pay for basic needs like rent, food, or utilities, you will want to have documentation to back up your claims. In that situation, if the Trustee is satisfied that you were not acting fraudulently, it may be overlooked.

Not Filing Taxes

If you are for any reason exempt from filing tax returns, then this potential mistake doesn’t apply to you. But for everyone else, it is very important to have records of tax filings for the last two years prior to filing for bankruptcy in Ohio. The information contained in your tax returns is vital documentation regarding your earnings and assets, and without them, you could be looking at a slower and much more complex bankruptcy filing process.

Banking Changes

Unusually large deposits will always raise flags and could point to a source of undisclosed income. Documentation is a must if you have legitimate reasons for making large deposits, such as a result of a cash sale of some sort. Switching to a new bank can also set off alarms, especially if you owe the previous bank money. This strategy may not help you in the long run anyway, as some banks will automatically freeze funds upon your filing for bankruptcy–you need to know the fine print prior to making any moves. Talk to your trusted Ohio bankruptcy lawyer to get the best advice.

Putting Off Consulting a Bankruptcy Attorney

As we’ve mentioned over and again, you need to be in touch with an experienced Ohio bankruptcy lawyer before filing for bankruptcy in Ohio. Each and every case is unique, and you simply cannot find appropriate advice for your situation online or in books–you need to talk to an expert early on in the process so that you make the best decisions and can have the most troublefree bankruptcy experience possible. Making uninformed financial decisions prior to finally breaking down and calling a professional could leave you with fewer options and in some cases, could seriously backfire. Don’t go it alone–contact a trusted bankruptcy attorney today.

Work With An Ohio Bankruptcy Lawyer

At Hausen Law, you’ll find an experienced team of chapter 7 bankruptcy lawyers. James F. Hausen has handled over 2,000 cases in his efforts to provide legal counsel to all of Northeast Ohio, including the Akron, Canton, Cleveland, Columbus, Dayton, Cincinnati and Youngstown communities. Contact us today to set up a free consultation and learn more about your bankruptcy options and to inquire about our credit counseling and credit repair programs.

There’s plenty to avoid when preparing to file for bankruptcy in Ohio, but this was really just part of the picture. We mentioned the bankruptcy means test in passing, and it’s at the heart of determining whether you are eligible to file for chapter 7 or chapter 13 bankruptcy. But there are mistakes surrounding the means test that can get your bankruptcy started off on the wrong foot. Check out the related blog article for some pointers and feel free to reach out to our team with any questions. We’re ready to help you regain financial footing.