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Watch Out For These Chapter 7 Stumbling Blocks

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Bankruptcy laws are in place to prevent filers from taking advantage of the ease with which debts can be eliminated. The last big overhaul of the laws took place in 2005 but there are many more (big) changes to come in 2022 if the proposed bill is passed. Unfortunately, these tune-ups tend to create issues for all filers and not just the wealthy who need to shed some debt easily. Before you file, consider the following issues that might affect you.

Too Soon?

You can certainly file bankruptcy as many times as you wish, but you are limited in the frequency. The date to take into consideration is your filing date (and not the date of your final petition). For chapter 7 filers, get ready to wait until at least eight years have passed since you last filed chapter 7. If you tried to file but your case was dismissed without prejudice, you can try again in 180 days from the date of your last truncated filing.

Without prejudice means the bankruptcy was dismissed for reasons other than fraud or misconduct. For example, you may have had your bankruptcy dismissed if you were unable to attend a creditor's meeting, even on Zoom, due to the coronavirus. Other non-prejudicial reasons include failing to undergo the required education classes, not producing requested documents, and filing only part of the bankruptcy paperwork (such as with an emergency bankruptcy filing).

Too Wealthy?

Bankruptcy filers who want to use the almost total debt relief found in chapter 7 must show that their income falls below the state median level. If you want to file chapter 13, on the other hand, no such limits exist. When a filer's income is too high, they must complete an additional worksheet when they file showing that they have enough expenses to justify the income overage. Higher than usual healthcare expenses and higher housing costs are two examples of things that might allow you to file if your income is too high. You may also choose to wait a bit if you expect your income to drop in the coming months.

Too Much Activity?

You must account for large financial transactions when you file. If you sold or gave away something of value before you filed, the bankruptcy trustee can take that item back from the buyer. Also, there are strict limits on how much you can charge on your credit cards prior to filing along with taking cash advances. Timing is key when it comes to filing, so speak to your bankruptcy lawyer and find out if any of your previous financial dealings could affect your filing.

To learn more, contact a company like Southern California Law Advocates.