If you’re trying to get ahead financially, paying off your credit card bills as soon as possible may seem like the first thing you should do. But could waiting to pay off your credit cards until you file bankruptcy work in your favor?
Preferential Payments & What They Mean for You
A preferential payment is a payment over $600 made by the debtor to anyone they owe — including credit card companies and banks — up to 90 days prior to filing for bankruptcy. Under the law, the bankruptcy trustee is allowed to recover those funds, even to the point of bringing a lawsuit against the person or entity the debtor paid. If you made a preferential payment to a family member that you owe up to one year prior to filing for bankruptcy, the bankruptcy trustee can also recover those funds from them.
Chapter 7 Bankruptcy — Asset vs. No-Asset Case
In a no-asset Chapter 7 bankruptcy case, you are likely to be discharged from all dischargeable or unsecured debts (with the exception of student loans and other secured debts), even if all of your creditors are not listed on your bankruptcy form. However, if you’ve made preferential payments that the bankruptcy trustee has to recover, your case may no longer be considered no-asset, since clearly you had assets within the 90 days to one year to pay substantial sums to your creditors.
When you have an asset case in a Chapter 7 bankruptcy, you must list all of your creditors. Any debts that are not listed may still be owed after the bankruptcy is complete. This can result in significant debt even after a bankruptcy, because many people aren’t sure who their creditors are, especially in the event that debts have been sold to other entities.
Overall, if you believe you may be filing for bankruptcy, it is best not to make any large sum payments within 90 days to one year before filing.
When to Contact an Experienced Bankruptcy Attorney
Filing for bankruptcy in Alabama can be a difficult process, and it’s one that most people aren’t able to navigate well on their own. Working with an experienced bankruptcy lawyer can help alleviate much of the stress and frustration of filing for bankruptcy.
At the Law Firm of Ted Williams Jr., LLC, we can assist you in fully understanding bankruptcy law and determining how to take the next step in overcoming your financial difficulties. Call today for a consultation at (205) 623-4443.