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In general terms, the one specific statutory requirement is to complete credit counseling. If you are an individual debtor, the credit counseling certificate is valid for 180 days from the date you take the course. Business debtors are not required to do credit counseling. After a decision to file for bankruptcy is made, complete disclosures of assets and liabilities must be made through your counsel to ensure the Petition is completely and properly prepared prior to since it is a document signed under oath.

Should I Ever Sell Anything Before Filing For A Bankruptcy?

Selling any assets prior to a bankruptcy is generally not recommended. The price received for an asset that is sold prior to bankruptcy could be potentially challenged as fraudulent not representing a fair market value sale. If a seller did not receive “reasonably equivalent value” for the asset sold, the sale could be challenged as a fraudulent transfer. Selling assets that are otherwise exempt, such as certain household goods or an automobile can generate excess cash that may limit the debtor’s ability to fully utilize all of the available exemptions under 11 U.S.C. § 522. The household goods exemption is fairly liberal under the federal exemptions. However, if you sell many household goods that would be separately exempt from the Trustee and creditors, then you may have excess cash in your checking and savings accounts, that might lead to a situation where a debtor is over-exempted.

The other reason why selling assets before bankruptcy is not recommended is that a trustee will carefully scrutinize all pre bankruptcy sales of assets. They may require documentation on the sales price and question how the sale proceeds were utilized.

What If I Accrue More Debt Just Before Filing For Bankruptcy?

Incurring debt prior to filing bankruptcy may subject a debtor to an allegation of fraudulently increasing their debt and create an issue whether the filing of the case is a substantial abuse of the bankruptcy laws. The most common example would be individuals who consult a bankruptcy attorney and believe that since they have some credit availability on their retail credit cards, they increase their charges and later seek to receive a discharge of all debt. The activity of individuals on their retail credit is closely scrutinized, especially in the year period prior to filing bankruptcy. If there is a pattern of usage that does not seem normal, a credit card company or a retail bank may choose to file a non-discharge-ability case. They could argue that the charges were fraudulently incurred at a time when the debtor was insolvent with no intent to repay the debt.

Should I Pay Back Any Family Or Friends I Owe Before Filing For Bankruptcy?

Repaying debts to family or friends prior to filing for bankruptcy is not recommended. One, any family member will be considered an insider under 11 U.S.C. § 101 of the Bankruptcy Code. That means that any payment to that insider a year made prior to bankruptcy could be challenged as preferential and recovered by a Trustee for the benefit of creditors. Transfers more than one year prior to Bankruptcy can also be challenged as fraudulent transfers made while a debtor is insolvent. Friends do not strictly qualify under the definition of insider in the Bankruptcy Code. Nonetheless, depending upon the nature or the relationship, arguments have succeeded by creditors or trustees that friends who are repaid within a year of bankruptcy also qualify as insiders. The outcome depends upon the facts and circumstances in each case.

A major reason why repayment of substantial debts to creditors prior to bankruptcy is problematic are the mandatory disclosures on Statement of Financial Affairs on the petition as to all out-of-the-ordinary course transfers within two years of the case filing. The circumstances may appear that a debtor has manipulated their bankruptcy to some degree. A Chapter 7 trustee might look at the entire proceeding suspiciously and investigate the case by serving Subpoenas and demands for documents.

When Must I Complete The Pre-Bankruptcy Credit Counseling Courses? If I Don’t Get This Done Right Away, Will It Hold Up My Case?

The pre-bankruptcy credit counseling course is a jurisdictional prerequisite to the valid filing of a bankruptcy case for individuals. Recommendation is done to complete it as early as possible given that the certificate itself makes the debtor eligible to file a chapter 7, chapter 13, or chapter 11 bankruptcy within a 180 days from the date they have completed the course. If you do not take the credit counseling course but still choose to file the case, the case will be dismissed by Motion of the US Trustee or the Court based upon a failure to complete credit counseling.

Even though some courts have decided the course can be completed on the date of filing for the case, that is not recommended because timing issues can arise. Therefore, it is advised to take the course well before you actually file for bankruptcy.

If I File For Bankruptcy, How Many Years Will It Stay On My Credit Report?

Under the Fair Credit Reporting Act, credit reporting agencies such as Experian, TransUnion, and Equifax are permitted to include the filing of a bankruptcy case on a credit report for 10 years. After 10 years, that information is considered obsolete information and must be removed from the report. In my experience, I have never been contacted by somebody who’s told me that after 10 years, the bankruptcy still appears on their credit report. On this particular issue, credit reporting agencies appear to be diligent and remove bankruptcy filing information after 10 years.

For more information on Bankruptcy In New Jersey, a consultation is your next best step. Get the information and legal answers you are seeking by calling (908) 373-8500 today.

Michael McLaughlin, Esq.

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