Bankruptcy Filings Continue to Drop!

Last week I attended a meeting put on California's Eastern District Court.  This district includes the Central Valley from Bakersfield through Sacramento.

One of the round table discussions was the drop in bankruptcy filings.  Fewer and fewer individuals and businesses are turning to bankruptcy.  The peak of bankruptcy filing during the Great Recession was in 2011.  Since then, fewer and fewer debtors are filing bankruptcy.

One attorney joked that if bankruptcy filings continue at the present rate of decline, the last bankruptcy case to be filed in California's Eastern District would be in December of 2016.  Of course, the present rate of decline in bankruptcy petitions won't keep at this level, but it is illustrative of how many people had to file bankruptcy in the Great Recession.

The trend is not just in California.  Nationwide, bankruptcy filings are down.  Here is an article from the American Bankruptcy Institute:

Bankruptcy filings register largest percentage drop in 2014


Photo Credit: Francesca Gallo at Flickr

Mistakes to Avoid When Contemplating Bankruptcy

Here is some useful tips for potential people considering filing bankruptcy. The list is not exhaustive. It makes sense to speak to a bankruptcy attorney as soon as you think that bankruptcy might be an option. In California's Central Valley (Fresno, Madera, and Tulare County) bankruptcy consultations can be obtained without paying a fee to an attorney.

Don't Do These Things Before/While Filing for Bankruptcy:

• Don't re-pay money to family for money that you borrowed from them.  The bankruptcy court can take these preference payments back up to one year later if you file bankruptcy.

• Don't take use credit cards 90 days before bankruptcy.  Don't take cash advances or make balance transfers either. You may have to repay purchase, cash advances and balance transfers done within 90 days of filing your bankruptcy.

• Don't file bankruptcy without talking to a bankruptcy attorney if you are about to receive a large tax refund.  You might be at risk of surrendering the tax refund to the Court.  See my article on this topic: Beware of Losing Tax Refund.

• Don't take out other new debt you will not be able to repay.

• Don't file when you may receive an inheritance within 6 months of filing bankruptcy.  You could lose it.

• Don't give valuable property away.  The Court will automatically presume that you are fraudulently hiding assets, even if your not.   

• Don't cash our retirement to repay debts without the advice of a bankruptcy attorney.  The assets inside retirement accounts are exempt accounts.  In other words they are protected from creditors in bankruptcy.  The policy for protecting qualified retirement accounts is to encourage people to save for retirement and not be broke when Americans are too old, or unable to make a living.   

• Don't take out a 2nd mortgage to pay off credit cards. This usually ends in disaster.  Sometimes bankruptcy is the better solution.  The added mortgage payment may make it too expensive to afford your home.  

Again, this is not an exhaustive list.  This is to encourage those with debt issues not to make bad decisions and to speak to a bankruptcy attorney beforehand.  

Photo Credit:  Danielle Buma at Flickr