If the wolves are circling, but you aren't sure that you will have to file bankruptcy, there are some Dos and Don'ts which may protect some of your property if you do eventually have to file.
payments on vehicles which you intend to keep. Creditors secured
by a car or truck can usually repossess the vehicle without notice to you
anytime you are in default in your payments. It will ordinarily take
longer for other creditors (including those secured by other property) to
act on a debt that is in default.
borrow from or withdraw 401k, IRA, and ERISA qualified savings and retirement plans to pay bills. Early withdrawal of these funds makes you liable for penalties and taxes which may not be discharged in bankruptcy. ERISA and 401K funds are exempt from creditors in bankruptcy, as are IRA funds in Arizona (except deposits made within one hundred twenty days before filing) and many other states. If you don't use these funds, you are very likely to have them to draw on after bankruptcy. [ARS � 33-1126.C]
borrow money on your home to pay bills. In Arizona, you can claim up to $150,000 equity in your home as exempt. (Many other states have similar exemptions.) This means you can go through bankruptcy, and still have this equity. If you take out a second mortgage on your home, you may be converting debt which would have been discharged in bankruptcy into debt which you will still have to pay in order to keep your home. These additional payments could be high enough to cause you to lose your home.
"friendly" creditors a security interest in non-exempt property.
If you have to borrow money from a friend or relative you could give that
creditor a security interest in the property which you own. For example,
if you have a car which is not exempt and you are borrowing money from a
relative, he or she could take a security interest in the car for the
loan. This will reduce your equity in the car, and the likelihood
that the trustee will take the car. It will also protect your
relative by insuring that they will be paid from the proceeds if the
trustee does take the car since he must pay off creditors secured by
property which he takes.
pay $600 or more back to relatives or business associates who have lent you money. Payment of a total of $600 or more to an "insider" (which includes relatives and business associates) within one year before you file bankruptcy is a "preference." The trustee may recover preferences from the person that was paid and divide the money between all of your creditors. In Chapter 13, you may have to increase the amount of your plan payments to cover the preference. (Payment of $600 or more to any other unsecured, non-priority creditor within 90 days before the case is filed may also be a preference.) [� 547]
put property you own into someone else's name to avoid it being taken by creditors or the trustee. That kind of transfer is a fraud on creditors and can result in your discharge being denied [� 727]. In addition, the trustee can take the property from the person to whom it was transferred [� 548].
reduce the amount
of future income tax refunds. Federal and state tax refunds are
routinely taken in Chapter 7 cases, and may affect plan payments in
Chapter 13. If you expect to get an income tax refund, reduce your
withholding so that you do not get refund. If much of the refund is
due to Earned Income Tax Credit, apply to get that refund as a part of
your regular pay. (Complete Form W-5, Earned Income Credit Advance
Payment Certificate, available at www.irs.gov/pub/irs-fill/fw5.pdf
or through your employer. For more information, see the IRS web page
Earned Income Tax Credit Questions and Answers.)
This page was last revised: 08/23/04