Prep Work: What To Do Before You File For Chapter 7
In the case of a bankruptcy filing, taking some important actions before you file can result in a far better bankruptcy experience. Deciding to file is a difficult endeavor, and you want to ensure that you get the greatest benefit from filing as possible. Your financial fresh start hinges on doing the following prep work, so read on to get started.
Make sure you get state resident benefits: In most cases, your family home constitutes the largest part of your net worth, not to mention the enormous emotional attachment that comes with being a homeowner. Undoubtedly, the fear of losing your home is not only one of the prime motivators for filing for bankruptcy in the first place, but may also continue to haunt you during the process itself. Whether or not you are able to retain your family home depends on several factors, including:
1. How much your total bankruptcy debt is.
2. How much equity you have in your home (its appraised value, with your mortgage balance deducted)
3. How much the homestead exception is in your state.
Every state provides bankruptcy filers with a certain dollar amount, called an exemption, that may be deducted from your home's value. This is referred to as a homestead exemption in some states. The amount available varies, and in some states you can double your exemption if you are filing bankruptcy together with your spouse. You must, however, meet the residency (or domicile) requirements for your particular state to use these valuable exemptions. In some cases, it could pay major dividends to delay your bankruptcy a few months if it means being able to retain your family home.
Make sure you choose the "right" state with which to file bankruptcy: In some states, you are presented with a choice of filing in your present state, or in the state from which you have recently moved. The rules limit the amount of time that filers have to choose a filling state. Given a choice, you would do well to view the relative merits of exemption amounts and other rules before you file. For example, not all states allow you to double exemptions when filing jointly. Additionally, some states allow you to choose to follow either their exemption rules, or the federal bankruptcy exemption rules. A careful analysis of each state's bankruptcy rules and the effect on your financial situation is vital.
Make sure you understand your rights to sell or transfer property: In spite of what you may have heard, you can, within the law, sell and transfer property before you declare bankruptcy. You are allowed to sell or transfer a non-exempt asset and use the proceeds to purchase an exempt asset. For example, cash in a saving account could be subject to seizure, but you may be able to use that cash to purchase an asset that is considered exempt, such as a vehicle. Caution and close consultation with your bankruptcy attorney is vital to avoid running afoul of the bankruptcy courts.
For more important "prep" actions, talk to your bankruptcy attorney.