When Not to File for Bankruptcy


Filing for bankruptcy is actually a very serious step and, unless properly approached, may lead to unfortunate consequences. Bankruptcy is filed in a U.S Bankruptcy Court - a Court that actually has so much power that it can actually stop the U.S. Supreme Court from acting - let alone virtually almost all Court in the entire United States  and in theory possibly any Court in the world.

only file bankruptcy if beneficialWhen a bankruptcy is filed when inappropriate, under the wrong chapter, or prepared improperly - you most likely will be in a worse situation than you are now.

That being said - bankruptcy would be used if it is appropriate, beneficial, filed under the correct chapter and the schedules prepared properly.

Real Examples1. Disclosure - failure to disclose  all property. Failure to properly disclose property is bankruptcy crime. Recently a person in South Florida was charged with a bankruptcy crime for failing to disclose a Rolex watch.

2.  Debt Not-Dischargeable - 95% of the debt is non-dischargeable student loans.

3. No Debt - if the collection of  all of the debt is barred by the statute of limitations.

4. Corporations  -  in most cases chapter 7 in not needed for a small business, you may wind-down and close a corporation under state law without filing for bankruptcy.

5. Just Paid Today - just got paid today and need to pay mortgage

6.  $8,000 Life Savings in the Bank - unless its exempt, such as being traceable to social security, but even then, you need to prove it

7. Tax Refund - its December and there will be a large IRS refund on April 15th.

8.  Income Taxes - income taxes will be dischargable if the case is filed in a few more months

9. Transfers - your just paid back a family member, friend, or anyone a large loan

10. Legal Advice - from an uncles who is a lawyer in New Jersey
chapter 7 and chapter 13 bankruptcy attorney11. Eviction - to buy a few more days  
12. Urban Legend - doing it inappropriately because "everybody at work did it"
13. Foreclosures - to discharge a potential mortgage deficiency on your home - the mortgage lender may never bring it
14. Exemptions - recently moved to Florida from another state, another state's exemptions apply,  and alot of your property is subject to liquidation in a chapter 7 case 
15. Too Much Property - substantial amount of property that is not exempt and the chapter 7 trustee is able to liquidate a lot of property 

16. Too Much Income -  an "abusive filing" and that will be dismissed or converted to chapter 13 or 1

17. Intangible Property - intangible property is real property. A potential personal injury claim or interest in a trust or estate may be very valuable. Non-exempt intangible property is not yours anymore when you file chapter 7 - it belongs to the chapter 7 trustee. That valuable personal claim - all the chapter 7 trustee has to do is pick up the phone and settle for whatever he deems appropriate by the Court - in most case, you get nothing.

18. Chapter 7 - when should have filed under chapter 13

19. Chapter 13 - when should have filed under chapter 7, such as little income and no non-exempt property

20. Cooperation - full cooperation with a chapter 7 trustee is required and the failure to do so may result in the lack of discharge of debt

21. Only One Large Creditor - sometimes if there is only one creditor, you are just moving the state court case over to the Bankruptcy Court - even worse, the creditor may have more power over you in a bankruptcy case

22. Valuable Real Estate in Another Country - a chapter 7 trustee can have a real estate broker in the other country sell it

23. Property Owned Together with Spouse - the exemption for property owned as "tenants by the entireties" is not always not a good bet as does not always fully work or is very difficult to prove