Here’s the Absolute WORST Thing Some People Do when Filing for Bankruptcy

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bankruptcy

On the road toward and beyond a bankruptcy filing, there are many dos — and even more don’ts. This isn’t because bankruptcy is a dangerous minefield that threatens to destroy people at every turn.

Rather, it’s because the amount of myths, misinformation an outright lies regarding bankruptcy is staggering. It’s even more shocking considering that we aren’t talking about vacation destinations or what kind of car to buy. Yes, there is a lot of lousy advice out there, and bad decisions are costly and stressful.

But filing for bankruptcy is an entirely different matter. Mistakes can, and often do lead to lasting damage — and in extreme cases, criminal prosecutions. And that leads us to the absolute WORST thing that some people do when filing for bankruptcy (to be fair, they are often convinced to do this by someone who they are going to hate in the near future when the mistake is discovered and the dire consequences set in).

Let’s hit the spotlight and reveal the number one thing that you — and anyone you care about — should never even think about doing, regardless of what you read or hear: run up your credit card debt prior to a bankruptcy filing.

There are two fundamental reasons why this a jaw-droppingly bad move:

It’s totally unethical.

Apologies to all of the Robin Hood fans out there, but stealing from the rich (i.e. big companies) isn’t ethical. It’s more sophisticated and may seem less harmful than walking up to someone in the street and stealing their purchase or grabbing someone’s keys and driving away in their car, but it’s essentially the same thing. Theft is theft.

It’s not going to work.

Creditors and especially court-appointed bankruptcy trustees are not stupid, and they are absolutely on the lookout for this kind of scheme. Remember, these are not cash purchases. Everything is tracked and traced, right down to the last cent.

Specifically, transactions for luxury goods or services totaling $650 or more within 90 days immediately prior to filing for bankruptcy will be presumed fraudulent. Of course, this may not be the case, but it will be up to filers to establish otherwise by demonstrating that the expenses were legitimate and necessary (e.g. getting new brakes on a car to make it roadworthy 60 days before a filing is not the same thing as buying the latest iPad a week before filing). The same presumption of guilt applies to any cash advances of at least $950 within 70 days immediately prior to filing for bankruptcy.

If filers cannot demonstrate that the transactions were legitimate and compliant, they will face the wrath of the legal system. For starters, their bankruptcy case will be dismissed. Then, creditors will go into attack mode and tack on interest penalties based on the date that the case was filed. Third, they will be prevented from re-filing for bankruptcy — and even when the ban is lifted, they may not be able to seek protection on previous debts. Lastly, they may be subject to criminal prosecution, which can lead to fines and in extreme (but not unheard of) cases, imprisonment.

The Bottom Line

If anyone is urging you to “game the system” by running up your credit cards prior to a bankruptcy filing, then consider yourself very, very fortunate that you’re reading this article now vs. after you’ve made that incredibly bad mistake. And if a friend or relative is thinking about heading down that road, send them this article and say “you’re welcome!”

Learn More

To learn more contact the Law Office of Charles H. Huber. We have over 30 years of experience filing consumer bankruptcy cases.

How Long After Bankruptcy Can You Buy a House?

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How Long After Bankruptcy Can You Buy a House?

If you are considering filing for bankruptcy, or have already decided that doing so is in your best financial interests, then one of the most important questions you may have is: how long after bankruptcy can I buy a house?

Here’s the short and stress-relieving answer: it will probably not take as much time as you think — or as you dread!

Now for the longer explanation: it is true that a chapter 7 bankruptcy will remain on your credit report for 10 years, while a chapter 13 bankruptcy will remain on your credit report for 7 years. However, it is NOT true that you need to wait 7-10 years after a bankruptcy filing (depending on the chapter) to get a loan to buy a home. Here are some of the options that may be available to you much sooner than you think:

Federal Housing Authority (FHA) Loan

Generally, you can apply for an FHA loan two years after the date of your bankruptcy discharge. If you file for chapter 7, this could be in about 2.5 years from the date of filing. If you file for chapter 13, this could be in about 3.5-5.5 years (this is because in chapter 13 bankruptcy, you must adhere to a court-approved repayment plan that lasts for 3-5 years before discharge).

However, depending on the details of your bankruptcy case, you may be able to apply for an FHA loan 12 months after discharge instead of 24. To qualify for this exception, you must demonstrate two things: that you filed bankruptcy through no fault of your own (e.g. excessive medical debt), and that you have handled your financial responsibilities property since filing for bankruptcy.

United States Department of Agriculture (USDA) Loan

A low-interest USDA loan may be available to you if you are in a low or middle-income bracket, and are willing to purchase a home in a rural community.

If eligible, you can apply for a USDA loan three years after getting discharged from chapter 7 filing, or 12 months after discharged from chapter 13 bankruptcy. As with FHA loans, if you can demonstrate that your bankruptcy filing was through no fault of your own, then you may qualify for an exception that would allow you to apply for a USDA loan 12 months after discharge. More information on this program is available here.

Veterans Affairs (VA) Loan

If you are a veteran, then you may qualify for a VA loan to meet your housing needs. There is no down payment requirement, and you may use the loan program multiple times. To qualify, you will need to demonstrate that you have paid your bills on time and without issue for two years after discharge (from either chapter 7 or chapter 13). More information on this program is available here.

Conventional Mortgage

You can also apply for a conventional mortgage from a private lender. If you file for chapter 7 bankruptcy, then you’ll be eligible 2 years after discharge if the bankruptcy was beyond your control, or 4 years after discharge if it was due to financial mismanagement. If you file for chapter 13 bankruptcy, then you’ll be eligible 2 years after discharge, or 4 years after dismissal (i.e. if you fail to complete the repayment plan).

Also keep in mind that the government does not insure private conventional mortgages. As such, you’ll be required to pay mortgage insurance in addition to the loan’s carrying costs (principal plus interest). The good news is that once you have 20 percent equity in your home, you’ll typically be allowed to stop the insurance payment.

The Bottom Line

Each year, hundreds of thousands of people across the country file for chapter 7 or 13 bankruptcy, and typically within two years — and in some cases, within 12 months — they’re back on-track toward buying a home. They are achieving their home ownership dreams after bankruptcy, and so can you!

Learn More

To learn more contact the Law Office of Charles H. Huber. We have over 30 years of experience filing consumer bankruptcy cases.

What is Bankruptcy Fraud?

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Statue Of Lady Justice

On the spectrum of unlawful activities, bankruptcy fraud may not be the most egregious crime, but it it’s nevertheless a major transgression. Indeed, any belief that the police or courts view bankruptcy fraud as minor offense is absolutely false. It is a serious crime with severe penalties that can include incarceration.

Generally, there are four types of bankruptcy fraud: concealing assets, providing false information, multiple filings, and bribery. Let us briefly look at each one below.

Concealing Assets

Concealing assets is the most common type of bankruptcy fraud, and is committed by filers who want to prevent assets from being liquidated by creditors (via the trustee). Keep in mind that concealing assets is not limited to deliberately keeping them off a list of assets. Transferring assets (physical items or cash) to family members, friends, or any other party with the intention of circumventing the rules — and therefore breaking the law — qualifies as bankruptcy fraud.

Providing False Information

It is potentially a criminal offense to lie or withhold information on a bankruptcy filing that, if disclosed, would lead to adverse consequences for the filer (e.g. stating that annual income is lower than it actually is, in order to pass the Chapter 7 means test).

The word “potentially” is important above, because while making a mistake in a bankruptcy filing is obviously not something the courts treat lightly, they do realize that good-faith errors can happen. For example, a filer may legitimate forget that a relative owes them $1,000 for a loan that was made years ago.

As we have written about previously, a filer who notices an error, or who has an error brought to their attention, should immediately rectify it and explain the circumstances. Doing nothing and hoping that the error does not come to light is not just a bad idea, but it is technically illegal.

Multiple Filings

Even if the information is correct, it is a violation of bankruptcy rules to submit multiple bankruptcy filings in different jurisdictions (and if the information is false, then it would almost certainly meet the threshold for a criminal violation as well).

Bribery

Bribery is arguably the most serious of all types of bankruptcy fraud, as it involves the criminality of someone with the power to influence a case, such as a court-appointed trustee. Keep in mind that bribery in this context is not limited to a cash transaction. Providing, or promising to provide, any benefit to a third party in exchange for an ill-gotten gain (regardless of the gain is ultimately realized it not) still constitutes fraud.

The Consequences

As noted above, the consequences of bankruptcy fraud are severe. Under U.S.C. Chapter 9, a conviction carries a sentence of up to five years in prison (not jail), and/or a fine up to $250,000. In addition, victims of bankruptcy fraud may also seek civil remedies to compensate them for their losses.

Learn More

It goes without saying that you have no intention of committing bankruptcy fraud.

However, you may be concerned about making a mistake in your filing; you may be getting some potentially dubious advice from a family member, friend, or so-called “expert”; or you may have a family member or friend who you fear is about to make an extremely large and probably catastrophic mistake, and you want them to get a wise second opinion.

If any of the above applies to you, then contact the Law Office of Charles H. Huber. We have over 30 years of experience filing consumer bankruptcy cases. Our experience is your advantage!

4 Ways to Stop a Foreclosure Auction

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If you are at risk of losing your home in a foreclosure auction, then understanding your options is critical to ensure your long-term financial health. Here is an overview of potentially feasible options:

  1. Bankruptcy
  2. Filing for bankruptcy will immediately halt the foreclosure, along with all other collection activity including calls, letters, and wage garnishment. You will then have a few months to work with the trustee to restructure your debts and keep your home. If this is not possible, then the bankruptcy foreclosure process will re-commence.

  3. Negotiate with Your Lender
  4. Although your lender will not readily admit it, the truth is that they do not want to foreclose on your property. Not because they want to give you a break, but because they are not in the foreclosure businesses. As such, it may be worthwhile to reach out — even if you have done so in the past without success — and try to work out a compromise.

  5. Short Sell
  6. If you can find a buyer for your home, then your lender may agree to a short sale. This is a transaction in which the net proceeds from selling a property are less than the debts secured against the property. Why would the lender agree to this? Because if you sell your home and give the lender 100 percent of the proceeds, they will not have to spend time and money foreclosing and then re-selling it (which could take a long time in a down market). If you head down this path, ensure that you present your lender with a reasonable offer from a qualified buyer.

  7. Assumption/Lease
  8. Your lender may be willing to accept an assumption/lease proposal. In this scenario, the party that buys your home becomes your tenant. Although you no longer live in your home, you maintain ownership and the buyer assumes the loan (debt). Getting lenders to agree to an assumption/lease proposal is difficult, but it can happen. Just keep in mind that to stop the auction foreclosure process, your lease payments (i.e. the amount you get from the buyer) must cover your home ownership costs, including mortgage, property tax, and insurance. If there is a shortfall, you must be able to demonstrate to the lender’s satisfaction that you can make up the difference. For example, if your obligation is $2,500/month and your buyer is willing to give you $2,000/month, you must show that you can top this up with $500/month from your income or another source of funds.

Learn More

To learn more, contact the Law Office of Charles H. Huber. We will give you the facts you need to make a clear and informed decision. And if you ultimately choose to file for bankruptcy, we will be there for you every step of the way, from initial filing through to successful discharge. We have over 30 years of experience with bankruptcy foreclosure cases. Our experience is your advantage!

What Could — and Probably Will — Happen if You Lie in a Bankruptcy Filing

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If you would like to save yourself a couple of minutes, then we can go straight to the bottom line right off the bat: do not under any circumstances lie on your bankruptcy filing. This includes everything from blatant untruths to “little white lies.” Do not lie, and do not listen to anyone who tells you otherwise. When things go bad, they will not be held accountable or pay the penalty: you will.

And now for the slightly longer version of why lying on your bankruptcy filing is one of the worst things that you can do — not just on your filing, but probably in your entire life. Here are the three terrifying scenarios that await you if you unwisely head down the road of deceit:

  1. Dismissal of Your Case
  2. Lying in your bankruptcy filing could lead to your case being dismissed with prejudice. What does “with prejudice” mean? In practical terms, it means that your debts could be deemed non-dischargeable, and you may be barred from filing for bankruptcy for many years. What’s more, your credit report will state that you filed for bankruptcy, even though you did not benefit whatsoever from any of the protections. Talk about adding insult to injury!

  3. Loss of Assets
  4. Do you know that speedboat that you love so much? The one that your work colleague “who knows a guy, who knows a guy, who lives next door to a guy who knows all the ins and outs of bankruptcy” told you to leave out of your bankruptcy petition because, well, “who’s going to know?” Well, the trustee is probably going to find out, because they’re experts at ferreting out non-disclosed assets. And then you’re going to lose your beloved speedboat, and your colleague at work is just going to shrug and say “oh well, that’s life!”

  5. Criminal Charges
  6. There is no way anyone should sugar coat this cold, hard truth: lying under oath, making false statements, and attempting to hide assets is fraud — and you could be charged with a federal offense. If found guilty, you could be fined up to $250,000 and/or spend up to five years in jail.

Mistakes Happen

With all of this in mind, it is also true that mistakes in a bankruptcy filing can happen. For example, some people forget to list an asset, list an incorrect value for an asset, forget to list a creditor (e.g. a distant relative to whom they owe money), or forget to list income from a minor side business (e.g. occasionally selling stuff on eBay, earning a little extra money driving for Uber, etc.).

Obviously, you want to avoid mistakes as much as possible — and working with an experienced and reputable bankruptcy attorney will help ensure that. But if a good-faith mistake happens, then don’t panic: it’s very unlikely that your case will be dismissed, your assets seized, or that you will be charged with a crime.

What you need to do — right away — is fix any mistakes by filing an amendment to your bankruptcy petition, and informing the trustee. If you are being represented by a bankruptcy attorney, then this will be taken care of on your behalf.

Learn More

To learn more contact the Law Office of Charles H. Huber. We have over 30 years of experience filing consumer bankruptcy cases. Our experience is your advantage!