A Good Way Out of a Bad Situation

If you are thinking about filing for Chapter 7 bankruptcy, you might want to begin several months ahead of time. The bankruptcy courts can look back at a filer's actions before they were even considering bankruptcy so it's important to know why and what you can do about it. Read on and find out more.

Creditors Have a Pecking Order

When a consumer declares bankruptcy, some creditors won't end up being paid a dime. Chapter 7, however, attempts to pay certain creditors if there are assets available. They do this using a filer's bank accounts, vehicles, homes, and more. Don't get nervous, though. Most filers use their state's exemptions to protect their personal property from the trustee's efforts to liquidate their assets. It's rare for a filer to lose any property and when they do they generally would have lost it anyway due to unpaid installment loans. If you are a wealthy filer and have a lot of assets, make a list of your property and its value and consult with a bankruptcy lawyer sooner rather than later. When funds are available to pay creditors, they may have to wait in line.

Prioritizing Debts

In most cases, if the filer has assets that can be liquidated, the money goes first to pay the administrative expenses of the bankruptcy. The trustee gets paid too. After that, the courts consider issues like taxes owed to the IRS and back child support as a priority. The main reason many file for bankruptcy is high credit card and medical debts. However, these debts are so low down on the list that they almost never get paid anything at all. You don't need to worry about paying any of the creditors you list on your bankruptcy paperwork, though; that is the job of the court to deal with. You might want to consider the matter of favoring one creditor over another, however.

Who Did You Pay?

The time before a filing can be chaotic and many filers can barely pay their living expenses. However, if you paid a creditor what the court considers too much, your transaction could be flagged and undone. For example, you might have felt awkward about your personal loan from an acquaintance, so you paid the loan off before you filed. The trustee over your case has the power to look back over your banking and other transactions and take back that money. The funds are then used to cover priority creditors.

Speak with your Chapter 7 bankruptcy lawyer about your recent financial transactions if you are unsure whether or not it falls within the guidelines.