Author’s note from Attorney Howard Iken:
When preparing for bankruptcy in Florida, it’s important to avoid certain mistakes and actions that can impact the success of your filing. Some key things to avoid include keeping your accounts at a bank that may freeze them, choosing a filing date with an artificially high bank balance, not disclosing assets or expected tax refunds, transferring assets before filing, paying off loans from family members, waiting too long to file, and taking out home equity loans or incurring more debt. During the filing process, avoid providing inaccurate information, accruing more debt, taking loans against your home or retirement accounts, failing to file tax returns, filing while expecting an inheritance, selling your house before completing the case, missing the required meeting, and falling for debt settlement scams. Consulting a Florida bankruptcy attorney is essential to navigating the process successfully.
Recommended Steps to Avoid
If you have made the decision to file for Florida bankruptcy, it is a sure bet your decision was not an easy one. Having made this difficult decision, it is crucial you avoid specific mistakes and actions both prior to filing bankruptcy as well as during and after the bankruptcy filing. A considerable amount of preparation is required for your Florida bankruptcy, not including the level of paperwork necessary. The truth is, many things you do—or don’t do—prior to bankruptcy can have a serious effect on the success of the bankruptcy, and certain actions or financial transactions can result in an irreversible impact on your bankruptcy. Some of the more common actions and mistakes made prior to filing bankruptcy include the following:
- Keep your checking and/or savings account at the same bank you have a personal loan with. Even if you have not filed for bankruptcy, the bank may take money from your accounts to cover your loan if you are behind on the payments. This is known as the right of setoff, and no notice is required.
- Keeping checking and savings accounts at a bank that is well known for freezing the accounts of those who file for bankruptcy. Wells Fargo is the best example of such a bank, and while this is a gray area in bankruptcy law, at present it could still happen. Even if you owe no money to the bank where you keep your checking and savings accounts, the bank could possibly freeze your accounts, denying you access to your funds. Exempting those frozen bank accounts during the bankruptcy filing could take as long as sixty days.
- Choosing a filing date for your bankruptcy on which your bank account is “artificially” high. On some dates, your bank account may look pretty healthy, even though you know there are a slew of automatic deductions and checks on their way in. Once you file bankruptcy, you must list your exact bank account balance(s), applying your Florida exemptions to protect these funds. Wait until all the monthly bills go through before filing for bankruptcy.
- Forgetting about an expected tax refund when listing your bankruptcy assets and money owed to you. (a tax refund is considered both). If you want to keep your tax refund, disclose the anticipated return and exempt it, even though you don’t actually have it in hand yet.
- Giving, selling, or transferring the title to your assets before you file for Florida bankruptcy. It is extremely important that you avoid doing any of these things for at least six months (preferably a year) prior to filing for bankruptcy. You could be charged with bankruptcy fraud if you artificially attempt to reduce your level of assets before you file for Florida bankruptcy.
- Failing to disclose all assets listed in your name. Suppose you bought a car for your nephew a year ago. You haven’t even seen the car since you bought it, but you have not put the title of the car in your nephew’s name, therefore, under Florida bankruptcy law, the car belongs to you, and you must treat it as such.
- Deciding to pay off loans made to you by a family member before you file for bankruptcy. Although you are required to list every debt you owe when filing for Florida bankruptcy, many people are embarrassed for their family members to know they are having financial troubles, so pay off the loan prior to filing for bankruptcy. Florida requires family members must be treated the same as any creditor without preferential treatment.
- Waiting too long to file for bankruptcy. This is a very common mistake; far too many people wait until they have judgments against them before they file for bankruptcy. Unfortunately, if you wait until there are lawsuits against you, there may simply not be enough time to prepare and file your Florida bankruptcy.
- Obtaining a home equity loan to pay off your credit card bills instead of filing for bankruptcy. You may think you are putting off bankruptcy, but in fact, you may end up losing your home. If you neglect to pay your credit card bills, you will get hassled by creditors and your credit score will take a nosedive. If you don’t pay your home equity loan, you could find yourself without a home. Find out just how a Florida bankruptcy might help you before you make the mistake of taking out a home equity loan.
Once you begin your bankruptcy filing, there are also specific actions to avoid in order for your Florida bankruptcy to go as smoothly as possible. These actions include:
- Providing dishonest, incomplete, or inaccurate information on the paperwork you fill out to start your Florida bankruptcy proceeding. Under Florida law, you are required to disclose all information related to your financial history, income, assets, debts, and expenses. If you knowingly misrepresent any portion of this information, you could be charged with perjury and criminally prosecuted. All information on the forms must be filled out completely—should you carelessly leave information out, you may not be able to add it later. If you are allowed to add the required information, you could be forced to pay additional fees with the additional paperwork. Should you leave out an asset—whether on purpose or accidentally—your Chapter 7 trustee may take the property when it is later discovered. If you don’t include all the required information, your bankruptcy might be dismissed or denied.
- Accruing more debt before you file for Florida bankruptcy. Some people figure since a specific credit card debt is going to be discharged in bankruptcy anyhow, why not charge a few hundred more dollars of “stuff” before filing? This is known as fraud and can keep you from being able to file for bankruptcy. At the very least, the credit card debt you accrued prior to filing for bankruptcy might not be discharged, and you will still be responsible for paying it. Anytime you buy a luxury item prior to filing for bankruptcy you could end up losing it or you could be prevented from filing for bankruptcy.
- Taking out an equity loan against your home prior to filing for Florida bankruptcy. If you do this, it could become an issue in your Florida bankruptcy filing. Instead of taking out a home equity loan, protect your equity with your allowed exemptions. In the same vein, avoid taking loans against your 401(k) pension or other retirement plan.
- Failing to file your income tax returns. If you have neglected to properly file your income taxes for at least two years before the time you file for Florida bankruptcy, you will have effectively put a total halt to your Florida bankruptcy. Without your tax returns, you will be unable to complete the necessary schedules and statements of financial affairs required for your Florida bankruptcy filing. It will also be impossible to accurately determine your past income as well as any tax liens or claims you may be subject to.
- Filing for bankruptcy even though you are aware you will receive a significant inheritance soon (within the year). This can include other assets you expect to receive, such as repayment on a loan you made to another, a lawsuit settlement or a tax refund in a significant amount.
- Trying to sell your house for a significant profit before your Florida bankruptcy case is complete. This could be an issue in a Chapter 13 case since it will last 3-5 years, while a Chapter 7 case will last only 90 days. If you are planning on selling your home before your bankruptcy case is over, discuss this fact thoroughly with your Florida bankruptcy attorney to avoid trouble.
- Missing your meeting. Those who fail to attend their Florida bankruptcy hearing could have their case dismissed. Don’t forget to bring your photo identification and some sort of proof of your Social Security number to the meeting.
There are additional pitfalls you should attempt to avoid, before, during and after your Florida bankruptcy filing. These include the following:
- Falling for one of the many debt settlement scams out there. There are, of course, legitimate debt settlement companies, but there are also plenty of not-so-legitimate ones. You may not even realize you have been scammed until it is too late, and you find you have lawsuits filed against you. In far too many instances, you will have spent more money on the debt settlement program than you would spend filing bankruptcy, only to find you eventually have to file bankruptcy anyway.
- Using your retirement fund to pay off unsecured debt. Many people do this because they believe their retirement fund will be seized during Florida bankruptcy proceedings anyhow. In most cases, your retirement account will be exempted (protected) during your Florida bankruptcy, therefore you are much better off keeping your funds in your retirement account than attempting to pay off your unsecured debt.
- Getting a cash advance within 70 days of filing for Florida bankruptcy. Should you get a cash advance prior to filing bankruptcy, you may find that debt ineligible for discharge during your bankruptcy.
- Using a credit card to pay the fees for your Florida bankruptcy filing as well as your attorney’s fees. Under the bankruptcy code, you are not allowed to pay your attorney and the filing fees for your bankruptcy with a credit card. It is necessary for you to have sufficient funds to pay these fees before you file for Florida bankruptcy.
- Paying unsecured debt ahead of secured debt while you are attempting to decide whether you will file for bankruptcy. Suppose you continue making the minimum payment on your credit cards each month but let your mortgage or car loan slide, as you sink deeper in debt. On average, people take several months to determine whether they will file for bankruptcy or not. The minimum payments you are making to your credit cards will not even make a dent, but letting your mortgage or car loan go into default, can prevent you from filing for Chapter 7 bankruptcy.
- Talking to your creditors after filing for Florida bankruptcy. Let your attorney handle all phone and mail correspondence with creditors. Talking to them will accomplish nothing, and could damage your bankruptcy petition.
- Filing under the wrong chapter. There are significant differences between Chapter 7 bankruptcy and Chapter 13 bankruptcy. Both forms of bankruptcy allow you the opportunity to get out of debt, but they are entirely different processes. Discuss your financial situation completely with your Florida bankruptcy attorney, leaving nothing out. In order to qualify for Chapter 7 bankruptcy you have to meet specific income and asset requirements, although even if you qualify for Chapter 7, you could, potentially file for Chapter 13. Make sure you have all the information necessary before you make this decision, preferably by allowing a Florida bankruptcy attorney to help you make this important decision.
- Avoid bankruptcy because you believe your credit will be wrecked forever. In fact, if you are not paying your unsecured debt, your credit is going to be damaged anyhow. Bankruptcy, despite what most people think, does not destroy your credit score forever, although it will certainly drop your score considerably for at least a few years. The bankruptcy will remain on your credit report for ten years, and you will initially see your credit score drop anywhere from 140-280 points, possibly more. If you commit to adhering to a strict budget and learn to use credit wisely, that score will start edging up by the first or second year, and could even be back in the “good” category by the second year following your bankruptcy filing.
In the midst of all these “don’ts,” there is one major thing you can do to protect your interests during your Florida bankruptcy filing as well as protect your future. Speak to a Florida bankruptcy attorney now, even if you are only considering filing bankruptcy. You will be extremely glad you did, down the line.