Thinking about filing bankruptcy? Make 2016 the year of being proactive about debt problems, instead of being reactive. Too many times, the decision to file for bankruptcy comes after a lawsuit is filed and a judgment is entered, the garnishment has started, or the bank account has been levied.
Knowing you are in a financial crisis and that creditors are hovering makes planning easier, even if bankruptcy is your ultimate course of action.
If you need to file bankruptcy in 2016, hear are the steps to help you be prepared:
1. Review your credit reports.
You need to know how much you owe and who you owe in order to make the best decision for your particular circumstances. Are the balances so high that you cannot reasonably expect to pay them off within the next 5 years? How high are the interest rates? Is a creditor lawsuit or garnishment imminent? Remember, even old accounts could lead to a lawsuit. That means creditors might be preparing a lawsuit against you while you’re reading this. Are you able to negotiate with your creditors to settle your debts for less or lower interest rates? A free site for obtaining both your credit report(s) and credit score is creditkarma.com, and this site lets you login anytime to see updates to your reports. You can also obtain free credit reports from all 3 credit reporting agencies once per year at www.annualcreditreport.com, however if you use this site please either save or print a copy of the report(s) that you pull for your attorney, as you will not be able to access them again for another year.
2. Look at the public record section of your reports.
Are creditor judgments showing up in your credit file? Are filed tax liens listed? Judgments do not always show up on your credit, but if you do have any court judgments or tax liens at all, know that the creditor may attempt a bank levy or a wage garnishment at any time.
3. Check to see if your current employer or bank is listed on your credit report.
Collection agencies and creditors do their best to search for information about you when they are planning on filing a lawsuit, or attempting a wage garnishment or bank levy. They first look at your credit report, as your current address, current employer, and even the bank you bank with may be listed as a creditor on that report. A valid residential address and/or employer address will ensure that a creditor will be able to find you to serve you with Summons in any lawsuit. And knowing your current employer or bank information will allow a creditor to easily institute a wage or bank garnishment as well.
4. Prospective employers can show up under the “credit inquiry” section.
Anyone looking at your credit will appear under the “credit inquires” section. For instance, you may be applying for a job, and as part of the application may authorize your prospective employer to conduct a credit check. Even if not divulged elsewhere on your credit report, this information tells a creditor two things: (1) approximately where you live, because you are likely looking for work near your home, and (2) where you may have just started working. Clients who recently started a job and then have their wages garnished soon thereafter are often confused as to how the creditor found out about the job so quickly.
5. Be especially careful during tax season.
Creditors are very aggressive February through April. They know you are getting a tax refund and usually that refund gets directly deposited into your bank account. The bank levy can happen at any time, even right after the refund hits your bank. Speaking of which, leads into our next point:
6. Keep bank accounts low.
Once they have obtained a judgment against you, creditors can easily levy bank accounts. As most banks now have several different branch offices, the creditor doesn’t have to levy the branch where you opened your account. They simply provide the corporate office with the judicial order authorizing the bank levy. If the creditor looks at your credit report and sees a credit inquiry, the creditor also will look for small banks and credit unions near that employer’s location, or for banks where you might be banking but may also have a small loan or credit card account showing up on the credit report. You could have your rent or mortgage money in the account when it is levied, or checks outstanding that have not cleared, which will then overdraft your account when they hit. And filing bankruptcy after the levy means you are unlikely to get that money back. If a bank levy is an imminent possibility, you may want to consider having paychecks or other money deposited onto a money card instead, as these are often harder to discover and levy against.
7. Don’t bury your head in the sand.
Doing nothing will not make everything go away. There is nothing worse than having to react to a financial crisis after it has occurred. You stand to lose much by waiting, as beside bank levies and wage garnishments, if you fail to appear in court in response to a Rule to Show Cause or a Citation to Discover Assets a body attachment (warrant) can be entered against you and you could wind up in jail. Make bankruptcy be a decision that you plan for, and not something you are forced into when your back is against the wall.
8. Contact the creditor to preempt collection efforts.
Avoid a bank levy or wage garnishment by contacting the creditor. Perhaps you can convince them that your assets and/or wages are exempt and that it is not worth their time and effort to pursue you. Maybe you can reach a payment agreement to forestall collection by the creditor, or negotiate to settle your debts for less. However, please be aware that if there is an open court case with regard to that creditor (regardless of whether or not a judgment has yet been entered), DO NOT sign any payment agreement in writing. This agreement could then be incorporated into a court order, and if you later fall behind on payments under the agreement it can be prosecuted as contempt of court for violation of a court order, which can also land you in jail. Also, if you do settle out a debt and the creditor writes off $600.00 or more in bade debt, be aware that you will receive a 1099-C in the mail next year that you will need to report on your taxes as income, which may raise your taxes and could impact the Earned Income tax credit or or other tax credits. (Bankruptcy does not result in a 1099-C, and does not impact your taxes.)
9. Start your bankruptcy attorney payment plan right away.
If you can’t afford the creditor’s payment plan, start paying your bankruptcy attorney right away. You can make weekly, bi-weekly, or monthly payments now, and likely will have the balance paid off within a short time and will be ready to file before a creditor has time to cause you much damage. Our office can file a motion at the time we file your case to pay the court filing fee in installments after the case is filed and while the case is pending, so the client does not have to come up with this additional money beforehand. You might also be able to use your tax refund to pay off any balance owed.
10. Once you’re finished paying, immediately file your case.
Don’t be the client that pays, but never sends back in the paperwork, or fails to complete the online Debtor counseling class that is required to file the case. Often I am holding onto a client’s money and their file for several months, only to be contacted after the levy or garnishment begins. I can stop future garnishments, but sometimes I can’t get the money back for the client if it has already been levied. Once you have paid the attorney fee balance, keep in touch with your attorney, and get them all the necessary paperwork in order to file your case as soon as possible.
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