Most people don’t anticipate the need to or want to file for bankruptcy protection, and therefore, don’t plan to file for bankruptcy protection. Most people also don’t understand the many protections offered to them by bankruptcy laws. Whatever circumstances have led to your current financial condition, it may be in your best interest to take time to explore how filing an Arizona bankruptcy may offer you financial protection.
If you believe that bankruptcy may be an option for you, then it is vitally important to meet with an experienced Arizona bankruptcy attorney. An attorney can help you understand how best to plan for your bankruptcy and protect your property, as well as what to avoid so that you don’t jeopardize those plans.
5 Actions to Avoid Before Filing an Arizona Bankruptcy
Some important things to understand and avoid doing before filing for bankruptcy protection include, but are not limited to the following:
- If you own your home, don’t move out. You must, with limited exceptions, live in your home at the time you file for bankruptcy protection to claim a homestead exemption. Even if you intend to surrender your home to your mortgage lender, you may be able to stay in your home even if you are not making mortgage payments for a number of months (or more).
Also, until the title to your home is no longer in your name, you may be responsible for things that happen on your property.
- Don’t use your retirement savings as a lifeline. Draining your retirement savings can go wrong in so many ways. First, your retirement savings in a qualified plan is likely protected from your creditors; however, when you pull the money out of the account it may lose its protection from creditors.
Moreover, you may also have to pay a penalty tax on the funds you withdraw from your retirement account. This penalty may lead to an increased tax liability that may require you to pay significant taxes.
Finally, consider whether the withdrawal is a short term fix or a permanent fix. If you are not able to pay your regular monthly expenses after you take money out of your retirement account, this is a short term fix and is likely a poor decision.
- Don’t repay friends or family. While you may feel morally obligated to repay those close to you, these payments may be considered preferences and subject to recovery in bankruptcy from those paid. This means that the Bankruptcy Trustee may contact those individuals and require them to turn over the money you paid them.
- Don’t transfer property. A transfer can be a sale or a gift. If you transfer property for less than the fair market value of the property, the property can be recovered from the receiver and sold to pay your creditors.
So you can sell your <insert asset> to <insert name of transferee> if you receive the fair value of the asset; be prepared to testify how you obtained the value of the asset, to show evidence of receipt of payment, and how you marketed the asset.
If you give your family member or friend an asset as a gift, this is a transfer for less than fair value and the property can be recovered by the Bankruptcy Trustee from your friend or family member to pay your creditors.
- Don’t incur new debt. If you use a credit card or take out a loan before filing bankruptcy, and if you knew you couldn’t afford to repay the debt, you may not receive a discharge of the debt.
The above list is not exhaustive and there are exceptions to every rule, however, the above list is a good baseline of considerations prior to filing for bankruptcy protection.
Remember, if you file bankruptcy without an attorney, you will be considered to know the law. Most consumer bankruptcy attorneys in Arizona offer free initial consultations, so meeting with an attorney before filing bankruptcy is always in your best interest.
Related topic: Can I File Bankruptcy Without an Attorney?
How to File for Bankruptcy Protection in Arizona
If you are considering filing an Arizona bankruptcy, you may wonder exactly how to do it. You can count on our bankruptcy and debt relief team to steer you in the right direction and be there to help navigate you through the entire process.
Just dial 602-667-7777, fill out a FREE online form, or text with us through our convenient LiveChat feature to schedule a free consultation today.