Personal Bankruptcy Secrecy
Here is a particularly
important tactic. It’s crucially important that you say nothing to your creditors
concerning your future bankruptcy plans. Never breathe a word to anyone. If you do, the
creditor will almost certainly seize your assets immediately in a rush to grab it before
you file and they are legally prohibited from acting.
Don’t even admit to having financial problems. Be very quite. If they call, be nice.
Promise to do your best to pay. Ask them to be patient. Do not lie or mislead them in any
way. Just keep humbly promising to pay and keep your thoughts to yourself.
Don’t become intimidated by your creditors. They’re experts at making debtors
feel bad about not paying. If you find their calls disturbing, buy or borrow an answering
machine and start screening all your calls. They will then be forced to communicate with
you by mail. This slows things down a bit. You also have the legal right to demand that
they stop calling you but that may only lead to a lawyer's call which you can't stop.
If you need to buy some time with the bill collectors, here are two ideas that may help
buy you several weeks. First there’s the old check switch. Say you have two bills.
Sit down and write out the checks just like you’re going to pay both of them. But
when you go to insert the checks into the envelopes – switch them. Send the payment
for company A to company B and vice versa.
I did this some years ago with Sears and J.C Penny. It worked great. They can’t cash
a check that isn’t made out to them so they just return it to you with a letter
pointing out your mistake. It’ll take around ten days or two weeks before you get the
letters back. This sort of thing happens every day to big companies so it shouldn’t
raise any eyebrows. But just don’t try to get away with this little stunt too often.
Credit card companies now routinely send out credit card “checks”. When you use
them to pay a bill, they automatically post to your credit card account just as a normal
purchase would. I simply took the check from my visa company and used it to pay off my
MasterCard account.
When those nice people at MasterCard sent me their checks, I promptly used one to pay off
the balance on my Visa card. Both companies were happy. I didn’t have to pay either
one anything that month and to top it all off I got a reduced interest rate on the amount
of both of the checks! Take full advantage of any such offers.
Do not make traceable luxury purchases. Running your credit cards up on the eve of filing
for bankruptcy is illegal and will not be ignored by the court.
Do not borrow from friends or relatives unless you sign a formal loan agreement with them.
This way they will have more leverage against your other creditors if you choose to file.
If you don’t bother with the agreement they may be left with only that which you will
pay them out of your sense of personal obligation. If you’re more than a year from
filing, you may be able to take a cash advance against a credit card to pay off a debt you
need to clear up. But don’t try it too close to your filing date.
Be careful not to pass any bad checks. When you file for bankruptcy you will be protected
from your creditors but you will not be protected against criminal charges. Avoid bouncing
a check, but if you do, make it good as soon as you can.
Tools of your trade are exempt items that the trustee can’t touch. Do you have
anything that would fall into this category? If not, see if you can arrange for one of
your assets to qualify for this exemption. For instance, if you take a job as a realtor
your car will become a tool of your trade. (Just needing your car to get to and from work
isn’t the same thing)
If you take a job as a mechanic, your power tools would also be considered tools of your
trade. You get the idea. In most areas there is a $750 limit but don’t forget your
“wild card” allowance which you may be able to use here.
Clear up any skeletons you may have in your financial past. Remember that before you file
for bankruptcy, you’ll have to fill out a set of extremely detailed financial
disclosure forms that may uncover any untoward activities.
The court may review your bank statements and ask questions about any unexplained deposits
and withdrawals. (If you’ve been involved in any unsavory dealings that you’d
really rather not have exposed to the courts, perhaps you’d better rethink this whole
bankruptcy thing.)
Don’t tell any friends or relatives about your plans. You can never tell who is going
to blab on you. That friend who has been so loyal to you for so long could be just the one
who rats you out and gets you into real trouble.
After you file you may have to come up with some hefty deposits if you want to keep your
utilities connected. You may also have to come up with several payments if you want to
keep your car. If your credit is already bad, you’ll need several hundred bucks for a
deposit on a secured credit card. Hiding cash or assets from the court during a bankruptcy
proceeding is a serious crime. But you should be giving some thought to how you might
raise some quick cash for use while your bankruptcy is in the works.
Stop buying expensive items with a high resale value. They will raise a big red flag when
you file. The purchase of any kind of coins or antiques would be especially suspicious. If
you must buy such goods, be sure to do so more than 18 months before you file and use cold
hard cash.
If you have too much equity in your house to keep it, it might be a good idea to go get a
second mortgage on your house. You could then invest those funds in an exempt asset. Ask a
lawyer about this little ploy. The usual rule is - the more you owe on an asset like your
house, the less likely it is that the court will bother to liquidate it.
Sell off an asset that you are likely to lose and use the funds to buy
“necessities”. But be fully prepared to explain to the court exactly why this
new item is so necessary to your day to day living.
The following tactic is clearly illegal and should be carefully avoided. Before filing, a
non-exempt item of considerable value is pawned at a local pawnshop. It’s existence
is then excluded from the financial statements. After the bankruptcy is final, the item is
retrieved. Many people feel that an item in hock isn’t really an asset. Legally
speaking, this certainly isn’t true. But that doesn’t stop some brave souls from
using this dangerous and illegal ploy.
You can save up to $4,000 of cash by purchasing a life insurance policy on yourself. The
policy must cover your life or the life of a dependent. But be careful, as the policy
should not provide for the automatic payment of premiums out of cash value if you fail to
make the scheduled premium payment. The total of these possible future payments may be
deducted from the $4,000 exclusion if the policy includes this option.
If you have an automobile lease, sit down and read through it carefully. You may find a
clause that states that the lease will be immediately terminated and the car seized when
the party holding the lease first hears of your bankruptcy filing. In most states this
clause is illegal but unfortunately very common.
If you don’t find any such clause, you may be able to reaffirm the remaining lease
debt and keep the wheels. If you find the clause, be prepared to have your car repossessed
as soon as the court notifies the leasing company. Ask your lawyer if there’s
anything he can do to stop them. If not, make other plans for
transportation.
If you still have a good credit rating, do what you can to protect it. At this point most
people have trashed their credit and know that their rating will be bad for up to ten
years after they file. But if you still have some good news on your credit report, you
should do what you can to preserve those creditor relationships. After you file, creditors
will be looking at you in a different way. On the one side you won’t be able to go
bankrupt again for many years (usually six).
This means that they know you no option but to pay up. But on the other hand, if you
choose to file under chapter 7 and discharge your debts, they will know that you have
recently beaten creditors out of money. Most people find their credit shot for the first
two years after filing but often go on to purchase cars or even homes thereafter will
little problem. You may be faced with higher interest rates, but chances are good that
you’ll be able to find the financing you need.
If there’s a creditor in your life that you’d like to do business with in the
future, you might want to consider several rather common practices. If you don’t list
the firm on your list of debts to be discharged (wiped out) on your bankruptcy petition,
you have three options:
First, you can continue to make payments despite filing for bankruptcy. Some creditors are
more interested in a debtor’s payment history than they are in a court action that
doesn’t involve them. Unfortunately Sears and Discover are not amongst them. You can
count on them canceling your credit line as soon as they’re notified of your filing -
no matter how small the outstanding balance may be.
Or, you can seek a “reaffirmation” of the debt. Reaffirmation means that the
debt will survive the bankruptcy proceedings intact and that you will be legally obligated
to continue to make payments until the account is paid off. If you fail to make the
payments on time, the asset can be repossessed and sold off.
Should the sale not raise enough cash to cover the entire debt (which is very common these
days), you will be liable for the difference (known as the “deficiency”). This
approach should be used sparingly. When the judge approves it, he/she will most likely
lecture you about what it is you’re getting yourself into.
Or, you can seek a reaffirmation without it being processed by the court. This move is not
as common as it once was but it might be worth mentioning. If you fail to make payments as
agreed, the asset can still be repossessed, but you will not be liable for any deficiency.
Keep in mind that reaffirmation of a debt is never required. It’s always your option.
While it’s clearly a major crime to conceal assets from the court, but some people
forget about the following assets:
Security deposits
Bonus pay/vacation pay
Future commissions
Dormant accounts
Informal personal loans
Collectibles/antiques
Savings bonds (Difficult to trace)
Performance bonuses
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