Bankruptcy Law Is a Minefield for Those Who Don't Know its Secrets
Bankruptcy law must be navigated with extreme care if you don't want to get blown up. What makes bankruptcy law so dangerous? There are many reasons, but two, in particular, cause a lot of problems for people. The first is that bankruptcy law makes decisions that were legal before filing bankruptcy, illegal or a problem after bankruptcy is filed. Did you catch that? Bankruptcy law penalizes people for making decisions that were legal before they filed bankruptcy. It is the only law that I know that takes does this.
Don't believe me? Read Joe's Sad Tale below to see how bankruptcy law can penalize people for legal decisions. The second reason is that the law can have different results for people that seem to be in the same situation. Read Tony's Sad Tale to learn more! Tony's Sad Tale is why you shouldn't listen to other people give advice about how bankruptcy works. What they are saying worked for them, but that does not mean it will work for you.
Bankruptcy Law Only Applies After You File Bankruptcy!
Sure, that makes sense, right? So, why am I pointing out the obvious? Well, all those decisions someone makes while trying to survive a financial crisis are scrutinized later through the lens of bankruptcy law. The problems show up after that person files bankruptcy! If that person is lucky, the problems are small and can be fixed or managed. If a major mistake is made, the person can be sent to federal prison, lose the right to file bankruptcy, have their case dismissed, or have to pay back a creditor that should have been eliminated in the bankruptcy. A frequent problem arises when people pay back their family. Read Joe's Sad Tale to learn more!
Joe's Sad Tale
Joe is unemployed and having financial difficulties. He borrows $5k from his Aunt Sue to help him pay rent and make the car payment. He promises to pay her back with his tax refund. Joe gets his tax refund and pays her back the $5K. Unfortunately, Joe doesn't get a new job and has to file bankruptcy. What's the problem? Joe violated federal law without knowing it! Joe's Aunt Sue is going to be forced to give the bankruptcy trustee the $5K that Joe paid her before he field bankruptcy. If she doesn't pay, the trustee sues her and wins a judgment, which gets recorded. The judgment ruins her credit and allows the trustee to garnishment her wages and bank accounts until the judgment is paid. Aunt Sue is not happy with Joe!
Aunt Sue has to pay $5K to the trustee because Joe didn't know the secret of something called the "lookback period" before he filed bankruptcy. Plus, he didn't know that "Insiders" are treated differently than regular creditors. If Joe had read our book "Bankruptcy Secrets" or talked with an experienced and knowledgeable bankruptcy attorney like Bill White, he would not have had this problem! Aunt Sue would have been protected!
Tony's Sad Tale
Another reason that bankruptcy law creates problems is that the laws can have such different outcomes for people. For example,Tony has been talking with a friend who just went through bankruptcy and was able to eliminate over $100K in back taxes. Tony owes about the same amount of taxes. After getting copies of his buddy's bankruptcy paperwork to follow, Tony decides to file his bankruptcy himself. Well, Tony does the paperwork just like his buddy and everything goes great. No creditor objects, the trustee has no objections and the court issues Tony a Chapter 7 discharge. Tony is ecstatic! Not only has he been able to eliminate all of his credit cards, store cards, medical bills, and the debt he owed on that car repossession, but he has eliminated his back tax debt of $100K. Or so he thought.
About 3-4 months later, he starts receiving notices from the IRS stating that they are going to take collection action if he doesn't pay them soon. He ignores the letters because he believes that his IRS debt is gone and the IRS will eventually figure it out. Well, his bank gets a levy order and the IRS takes all of Tony's money in the bank. Tony calls the IRS to find out what is going on and the agent tells him that his bankruptcy did not eliminate the back taxes as Tony believed. Tony finds out that if he had only waited another 60 days to file his bankruptcy, the taxes would have been eliminated. If Tony wants to use bankruptcy to eliminate his tax debt, Tony must wait another 8 years. Tony made the mistake of believing that he would have the same results as his buddy.