Filing bankruptcy is a big step. It is usually your last resort in a long battle with creditors. In order to get ready to file for bankruptcy, it is important to go into the process with a basic understanding of the pre-filing process. As a bankruptcy lawyer, I see areas of misunderstanding that keep people from being ready to file.
To get ready for a bankruptcy filing, you must understand three very important things: 1) bankruptcy is an all in process, 2) you are not going to lose all of your property in the bankruptcy, and 3) honesty and accuracy are absolutely required. In fact, these three things are closely related to one another. This is because people get nervous about bankruptcy being an all in process and worry that they will lose everything; and so, they try to leave things off of the petition.
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When I say that bankruptcy is an all in process, I mean that the bankruptcy petition asks for all of your financial information, a list of all of your assets, and a list of all of your liabilities. There is a very good reason for this. You see, when you file bankruptcy you are asking the court to discharge all of your obligations. The discharge means that your creditors can never attempt to collect from you again. Oftentimes this means that an unsecured creditor will not get another penny from you, can never attempt to get another penny from you, and must write off the debt. In the eyes of the law, it would be unfair for a creditor to get written off entirely and to let a debtor keep - for example - a jewelry collection. Similarly, it would be unfair for a debtor to list a bunch of credit card for discharge, but get keep a debt you owe to your brother off out of the bankruptcy.
The fact that bankruptcy is an all in process makes people nervous. They worry that they are going to lose their property. The reality is that most personal bankruptcy cases are called "no-asset" cases. This means that none of the debtor's property is subject to collection and liquidation for the benefit of creditors. The bankruptcy system has something called exemptions. These exemptions are only available to individuals. The exemptions allow you to keep all of the property that is necessary for you to get a fresh start. The bankruptcy system realizes that people need to keep their homes, their cars, their clothes, their tools, there household goods, and things like that. Basically the only things that you cannot keep in a chapter 7 bankruptcy are unusually valuable goods such as furs, jewelry, houses or cars with excess equity, or other things that ordinary people would not have. Never fear if you have property that is subject to collection and liquidation, you can still keep the property if you file a chapter 13 bankruptcy. If you leave a piece of property off of the petition, then you cannot claim an exemption in it. If you lawyer knows about all of your property, he can usually structure the exemptions to protect the greatest possible value.
The first two issues, lead many people to ask two questions: 1) can I keep something out of the bankruptcy, and 2) if the trustee could never find it can I leave it off. The answers to both of those questions is an emphatic no. You must sign your bankruptcy petition under penalty of perjury. If you omit property or income from your petition, you could lose the discharge or even be sent to federal prison. You may think that the trustee will never find out about your valuable stamp collection or the job that pays you under the table, but they can and they do. The trustees have seen thousands of bankruptcy cases. There is no form of fraud or intentional omission that they have not seen. Bankruptcy judges have no sympathy for a debtor who makes misleading statements on their petition. If you tell your lawyer that you intend to omit information from your petition, he cannot file the petition on your behalf. It is infinitely worse to omit something from the petition than it is to include it. Honesty and accuracy are paramount.
If you understand these three basic principles of bankruptcy, you will be prepared to begin the pre-filing process. When you decide to file bankruptcy and contact an attorney, you will be asked to provide a great deal of information. If you remember that bankruptcy is an all in process, that you will not lose all of your property, and that honesty and accuracy are paramount, then you are prepared to begin to prepare your bankruptcy petition. You should also remember that whatever you tell your lawyer is privileged and confidential, so it is better to ask about what you are supposed to do than it is to guess and get it wrong.
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