Name: Attorney Mark Buckley, CFP
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RI Bankruptcy Advice: Tell the Truth

Your Duties to Disclose During Bankruptcy

A successful Chapter 7 bankruptcy requires honesty in order to work. When filing for bankruptcy in Rhode Island (or any state for that matter), honesty is not just necessary: it is mandatory. Anyone filing for bankruptcy should know that they are expected—required, rather—to act in good faith and be completely transparent with their RI bankruptcy attorney and Chapter 7 bankruptcy trustee.

There are three areas in particular where this “duty to disclose” comes into play for those filing for bankruptcy.

(1) Duty to Disclose Pre-Bankruptcy Asset Transfers

Imagine you own a number of expensive assets (real estate, valuable jewelry, multiple cars, perhaps a boat) but have created considerable debt in acquiring them. Scared that you may lose something, you secretly transfer these items to a close relative before filing for bankruptcy, with the intent of taking them back after your debt has been eliminated. This would be considered fraud under bankruptcy law and could be grounds for the denial of your debt discharge. For this reason, you are required to alert your attorney of any and all transfers of interest in the period before you filed for bankruptcy.

(2) Duty to Disclose Payments Made Before Your Bankruptcy

You may or may not have been advised to avoid repaying loans to family and friends prior to filing for bankruptcy. This is partially because of your “duty to disclose” pre-bankruptcy payments, since repaying loans from family and friends in this context can also be considered as fraudulent. In repaying old debts, you have chosen a lesser priority “creditor” over another higher-priority creditor, an action that can have serious repercussions in bankruptcy court. For this reason, any pre-bankruptcy payments beyond what bankruptcy court considers “essential” must be disclosed to one’s bankruptcy attorney.

(3) Duty to Disclose Any Lawsuits

Your “duty to disclose” extends to payments you expect to receive as well. If you are currently involved in a lawsuit from which you expect to receive some form of financial settlement or compensation, you have an obligation to alert your bankruptcy attorney of your situation.

Bankruptcy is a complicated business, so consulting a qualified bankruptcy attorney is an intelligent move for any person struggling with excessive debt. A good bankruptcy attorney can help you make sense of bankruptcy law’s complex procedures and make the most of a difficult financial situation. The Law Offices of Mark Buckley offer free debt consultation and are a good place to start when looking for financial direction.

Get Bankruptcy Advice Even If You Have No Intention To File

A common emotion for most Chapter 7 bankruptcy filers is REGRET. Not regret for filing bankruptcy, but regret for not seeking legal help earlier for their financial struggles.

This may sound self-serving coming from someone who has helped more than 3,000 clients in Rhode Island file for bankruptcy relief, but ask anyone who has filed a Chapter 7 bankruptcy. Most debtors waste time and money on weak attempts to solve an unfixable mess.

Recently, I spoke to married client who hadn’t saved much for retirement. He sold his house a few years ago and put the $ 120,000 profit in the bank, hoping it would supplement the $ 40,000 kept in a 401k plan.

Over the years, he spent $ 80,000 of his precious savings and all of his 401k in order to pay substantial credit card debt. He still owes $ 37,000 and asked me if he could NOW file a Chapter 7 bankruptcy to discharge the remaining debt.

Under federal bankruptcy protection laws, he would have difficulty protecting his remaining $ 40,000 in the bank. Because the account is joint, he may be able to protect half, but the rest is fair game for the bankruptcy trustee to go after. Now in his 70’s, there is no way this retired man could afford to lose $ 20,000.

What went wrong? What should he have done?

If he had called me years ago, I would have explained how under Rhode Island law, he could have exempted all the equity in his modest home and still file bankruptcy to discharge his considerable credit card debt. I would have also explained how it almost never makes sense to liquidate qualified retirement assets to pay credit card obligations. Instead of taking a 10% penalty on the early withdrawal, paying income tax on the gain, and forfeiting the future growth of the account, he should have known that bankruptcy exemption laws are quite generous in protecting retirement assets.

In other words, he could have kept his house and retirement account and discharged all his credit card debt . . . with ease!

It is unfortunate that he spent most of his life savings on debt that could have been eliminated with a simple Chapter 7 bankruptcy filing.

Here is my point. You may never want to, or need to, file for bankruptcy relief. But you should talk with a skilled bankruptcy lawyer who can explain all of your debt options.

So, when do you know its time to seek help? Do you have more than $10,000 in unsecured debt, are you robbing Peter to pay Paul, are debt collectors calling you at home or at work? If so, something is seriously wrong.

Bottom line: You would be surprised what you could learn from sitting with a qualified bankruptcy attorney. A good bankruptcy lawyer can offer a free consultation and patiently explain all of your debt-relief options.

Which Debts To Pay First

Re-prioritizing Your Bills

You may have been advised by experts to pay off high-interest debt before other expenses. In most cases, this advice is quite sound; however, did you know that there are certain times in which it is best to pay off debts with lower interest rates first? Don’t exhaust your limited resources without first prioritizing your debt obligations.

NerdWallet financial expert Tim Chen says, “When you have several different types of debts and your income isn’t quite keeping up with your total expenses, it can be tough to figure which debts to pay first. Ignoring high priority debts and focusing on less important ones may ultimately leave you in a worse situation than you were before. It’s often helpful for many people to have a table that lists their debts in order of highest priority to lowest.”

Here are some tips to help you re-prioritize your personal expenses?

First, start with secured debts—debts associated with assets that can be repossessed or otherwise seized. Your car and your house keep you moving, protected, and able to look for work, and as such they should be your first priority as far as protection is concerned. In the event that paying for even these most basic of priorities becomes untenable, Chapter 13 bankruptcy offers makes it possible to re-sort your finances, restructure your payments, and satisfy your creditors.

Deal with debts that can result in serious penalties second. Failing to pay off certain kinds of debt can result in serious penalties (including prison time.) Clearly, it is best to resolve these financial shortcomings as soon as possible.

The next debts to clear are those for services that require continued use. There are certain services that we simply cannot do without—electricity, running water, medical aid in the event of injury. Failing to recompense your doctor for his services will probably require you to find another, and late payment on utilities bring financial penalties with them. Although increasing numbers of doctors and utilities are willing to work with you on payment plans during these difficult economic times, you need to try to pay off debts associated with these services in a timely manner.

Finally, leave your unsecured debts (debts with no assets backing them) for last. Although the creditors of these debts may harass you while you make more pressing payments, they are unlikely—and in many cases unable—to repossess your property and more willing to work something out with you. If you still can’t cover your credit card debt after eliminating the first three varieties of debt, you should probably consider filing for Chapter 7 bankruptcy, which removes unsecured debt in order to allow you time to save for higher priority expenses.

If you are one of the millions of Americans in financial trouble, consult a qualified bankruptcy attorney.

Do Chapter 7 Debtors Have to go to RI Bankruptcy Court?

Going to court is rarely fun. Financial and family court matters can be issues of serious stress and discomfort. Court cases are filled with uncertainty and conclude only after lengthy legal battles.

Thankfully, a Rhode Island Chapter 7 bankruptcy case is entirely different. In the vast majority of RI bankruptcy cases, debtors rarely enter a courtroom. Although your RI bankruptcy lawyer files your petition with the US Bankruptcy court in Providence, your case is reviewed by an attorney at the US Trustee’s office, meaning that your bankruptcy case does not need to be heard in a courtroom. No judge, jury, or bailiff will be necessary.

The room where I handle my RI bankruptcy creditor meetings is nothing like a courtroom, with only a few scattered tables and chairs. RI Chapter 7 bankruptcy meetings are almost always the same: no excitement, no drama, very predictable and uneventful. You will sit next to me and across from the bankruptcy trustee at a table with a tape recorder and computer. The bankruptcy trustee will typically hear your case within an allotted 5-minute time span. Only improperly-prepared petitions, or extrememly complicated bankruptcy cases, take longer.

One key to a stress-free Chapter 7 bankruptcy case is to find an experienced bankruptcy lawyer with attention to detail and who can do things right the first time. If this kind of lawyer prepares your petition, your hearing should be entirely uneventful.

If you hire a lawyer from a bankruptcy mill, however, be prepared for headaches.

The bankruptcy hearings take place at the Federal Center, 380 Westminster Street, 6th floor, room 620. You should arrive 30 minutes prior to your hearing and have with you a state issued identification card (driver’s license) and your Social Security card.

14 Lies About Bankruptcy

Search the words “bankruptcy”, or “filing for bankruptcy”, or even “Rhode Island bankruptcy lawyer” on the internet and you will discover a subject surrounded by a confusion and misinformation.

However, if you are drowning in debt, it becomes crucial to separate fiction from fact. Is bankruptcy as bad as your creditors would have you believe? Let’s analyze a few of the charges leveled at bankruptcy to find the truth.

Myth 1: Under The NEW Bankruptcy Law….There’s No More Help (or It’s Too Late To File)

Nothing could be further from the truth. Despite what you may have heard from the press, this claim is completely unsupported. In reality, you can do almost as much (and in some cases, more) under the new law as you could under the old law. Many clients are actually making out better under the new law than they did under the old.

Myth 2: Everyone Will Know You Have Filed For Bankruptcy

This is another falsehood. The average person can obtain a financial fresh start without the world ever finding out: chances are the only people who will know about your RI Chapter 7 filing are the people you decide to tell. Although it is true that your bankruptcy is a matter of public record, the number of bankruptcies filed yearly is so massive that the possibility of anyone knowing you filed is extremely remote.

It is crucial to note the importance of not telling others of your bankruptcy filing. Like divorces and cancer, financial problems makes good gossip, and if you tell one person, you tell the world. Unless you actually want your friends and family to know you filed for bankruptcy, keep it under your hat.

Myth 3: You Will Lose Everything You Have

Most of my clients don’t lose anything. Every state, including Rhode Island and Massachusetts, has its own set of exemptions that protect various kinds of property under bankruptcy. For example, Rhode Isand’s exemption laws protect a person’s house, car, truck, household goods, furnishings, retirement plans, IRAs, wages, personal injury claims, and cash value in life insurance. In most cases, creditors will not require the signing of a reaffirmation agreement to keep secured property. Even if you have more property than can be covered by available exemptions, filing for the slightly-more-expensive Chapter 13 bankruptcy allows you to keep your property.

Myth 4: You Will Never Be Able To Own Anything Again

No matter how many people believe this myth, it too is untrue. If anything, bankruptcy actually helps you get back on your own feet financially. In the future you will be able to buy, own, control and possess whatever you can afford, and if you are able to come up with the money for it, there is no law preventing you from buying homes, cars, trucks, equipment, household goods, et cetera.

Myth 5: You Will Never Get Credit Again

The opposite is true: filing for bankruptcy leaves you in a better position to get credit than not filing. This is because filing for bankruptcy eliminates debt. Once your debt is behind you, you look more attractive to banks and credit card companies. In fact, it probably won’t be long before you start getting credit card offers-which is a mixed blessing because you don’t want to get right back into debt all over again.

Banks, credit card companies and other lenders might charge you higher interest rates at first, and will demand more money in down payments, but if you are financially responsible and keep your job, the quality of your credit will only improve as time goes by. In most cases, if a client has not re-established good credit after 3 years, it is not because he filed bankruptcy; something else must have happened to disrupt his credit.

Myth 6: Filing Bankruptcy Means You’re a Bad Person

On the contrary, filing bankruptcy is a sign of financial responsibility.

Filing RI bankruptcy helps remove certain debts so you can take better care of your family, freeing your loved ones from the constant threat of unpaid bills and harrassing bill collectors.

Over 750,000 families file for bankruptcy relief every year. The majority of these are industrious, honest, law-abiding people who have simply fallen on hard times-whether it be job loss, family emergencies, medical difficulties, failed businesses, or otherwise. Bankruptcy laws were created with such unforeseen circumstances in mind, in order to allow families trapped under crushing mountains of debt to make a fresh start for themselves.

Myth 7: Filing Bankruptcy Will Hurt Your Credit For 10 Years

To believe this myth is to confuse two entirely different concepts. The fact that a bankruptcy filing is reported on your credit report for up to 10 years does not mean that you will have no credit, or bad credit, for 10 years. In reality, filing for federal debt relief might not actually have a negative effect on your credit score at all.

Generally speaking your credit is already a mess-or maxed out-by the time you make an appointment to see a bankruptcy attorney. More than likely you have very little or no credit for bankruptcy to hurt.

Myth 8: If You’re Married…Both You and Your Spouse Have To File For Bankruptcy

Thousands of cases exist in which husbands or wives filed for bankruptcy separately from each other. While it is sensible for a husband and wife who both have a lot of debt to file for bankruptcy together, doing so is never a legal requirement. If there is not enough debt in both spouse’s names, I will only file for the spouse who actually needs help.

Myth 9: It’s Really Hard To File For Bankruptcy

With an experienced bankruptcy attorney, filing for bankruptcy is far from difficult. In all honesty, the most difficult part of filing for bankruptcy is making the decision to do so. After that decision is made, filing bankruptcy in Rhode Island should be a straightforward process.

Myth 10: Only Deadbeats File For Bankruptcy

Most who file consumer bankruptcy do so in order to protect their family from financial ruin. The majority of people who file for debt-relief are hardworking individuals who resort to filing as a last-ditch attempt to deal with large bills. Life-changing experiences like divorce, job-loss, failed businesses, illness, and unforeseen emergencies can happen unexpectedly. As a step to free your family from crushing debt created by these events, bankruptcy is a noble act.

Compare this to the real definition of a deadbeat: someone who lets himself get deeper and deeper into debt each year, allows creditors to abuse him, and pays his hard-earned money to those creditors while his family suffers. His house falls apart, his car falls apart, his life falls apart, his family falls apart.

He doesn’t seek to fix his situation because he doesn’t care. “Deadbeats” don’t file for bankruptcy: financially responsible people who care about their families do.

Myth 11: Even If You File For Bankruptcy, Creditors Will Still Harass You and Your Family

The moment you file bankruptcy, an order called the “automatic stay” is issued by the Rhode Island Bankruptcy Court. This order is a grave warning that tells your creditors to leave you alone. The automatic stay prohibits you from all collection actions and even prevents your creditors from being allowed to talk to you. Creditors must cease all new collection attempts and halt all collection attempts they have already started. Their failure to do so gives you the right to take your creditor to court. Bankruptcy Court Judges are not friendly to violators of the “automatic stay.” In essence, creditors can either leave you alone or suffer the consequences: many Bankruptcy Court Judges have been known to issue severe punishment on offending creditors.

Think about the peace of mind you will have once you file for bankruptcy protection. No more collection letters, phone calls, repossessions, lawsuits, or threats of foreclosure from hungry creditors. You are protected by the “automatic stay”and have the full force of the bankruptcy court system backing you.

Myth 12: If You File For Bankruptcy, It May Cause More Family Troubles and May Even Lead To Divorce

Filing for bankruptcy does not cause family troubles-not being able to provide for your family does. Stress and anxiety in the family are the products of the symptoms, not the cure. When unpaid bills loom, creditors can knock at the door, and nothing can be done about it. In this environment, families will experience tremendous levels of pressure. If this pressure is allowed to continue for long, it can lead to family rifts and even divorce.

Bankruptcy, by its very nature, is designed to remove this pressure by destroying debt. Once the burden of debt is removed, stress lowers and your family can breathe easy again. Filing for bankruptcy can be an important first step in re-building relationships strained by financial hardship.

Myth 13: You Can Only File Once For Bankruptcy Protection

Under Chapter 7 bankruptcy law, you can get a “discharge” once every eight years, allowing you to file for debt relief again if necessary. The wait is even shorter under Chapter 13, where it is only six years.

Myth 14: You Can Pick and Choose Which Debts and Property To List In Your Bankruptcy

Unfortunately, this is not only impossible, but illegal. You must list all of your property and all of your debts when filing for bankruptcy. One of the prime reasons people want to leave out a debt is because they want to continue paying it off. However, the same result can be achieved under bankruptcy. Bankruptcy does not prohibit you from paying back whoever you like. In fact, in some cases you need to continue paying certain debts under bankruptcy-if you want to keep cars, trucks, or houses you owe money on, for example, you must continue paying off your debt. You are protected under law and are able to keep the property for as long as you stay current on these loans.

Bottom line: Knowledge is power. And in these days of financial instability, economic turmoil, and rampant debt, knowledge about your financial options is crucial to keeping your family and possessions secure. Wouldn’t you prefer to know the truth about bankruptcy than remain in the dark about your options? Before you come to your own personal verdict, make sure you know enough information to make a responsible decision.

The sad truth is that myths and ignorance are a creditor’s best friends.