What Are the Risks of Filing Bankruptcy?

Is filing bankruptcy risky?

No, provided that you do it right.  If your bankruptcy lawyer does their job, you don’t have to worry.  A bankruptcy lawyer isn’t someone who just fills in the paperwork and shows up at the 341 meeting.  A good bankruptcy lawyer does a complete and thorough examination of your financial condition and highlights any areas of risk in your case, such as non-dischargeability concerns, denial of discharge concerns, and property protection issues.  Once your lawyer highlights those areas of risk – if you even have them – they can structure your case to minimize or avoid them completely.

What is the number one cause of bad bankruptcies?

It’s poor communication between the attorney and client.  The Bankruptcy Code requires each petitioner to provide specific information in a specific way.  In a good attorney client relationship, the attorney makes clear specific requests for information.  If you don’t understand the request or it seems unclear, your attorney should be willing and able to help you understand.

I understand that bankruptcy is stressful and confusing.  I work with each of my clients to make sure that they understand the process and understand the information I need to make their case work.  I never want my clients to be left guessing.  If you have a question, email or call.  I prefer to spend five minutes on the phone answering a simple question now, than having you worry about your case later.

Avoiding The Three Biggest Bankruptcy Risks

  1. Non-Dischargeability of a Debt:  Some debts, like child support, are always non-dischargeable.  But other debts, for example credit cards, are usually dischargeable.  However, if the creditor believes there was fraud, then they can ask that all or part of their debt be taken out of the discharge.  I can examine your debt structure and the activity of your creditors to determine how best to minimize the risk of non-dischargeability on your debts.
  2. Denial of Discharge:  Denial of discharge happens when the there has been a false statement of fact, omission, or other fraud against the bankruptcy system.  Omitting a a single material fact puts you at risk for the denial of discharge.  I structure my petition preparation process so that you understand the information that I need and why I need it.  That way, I can protect you from a denial of discharge.  As long as you give me honest complete answers to my questions, I can protect your discharge.
  3. Loss of Property:  I believe that a good lawyer should be able to tell their client what property they will keep and what property they will lose, before the bankruptcy is filed.  You don’t want to file bankruptcy and be surprised by a turnover request from the trustee or a motion for relief from the automatic stay.  During the petition preparation process, I examine your asset structure and counsel you on what property is at risk in a bankruptcy.  Oftentimes, I can structure your bankruptcy so that you don’t lose any property.  The point is, make sure you understand how your assets are protected before you file your bankruptcy petition.

I cannot guarantee that a bankruptcy is risk free.  That’s unethical under the Washington State Rules of Professional Conduct.  No lawyer can eliminate a risk entirely, but I believe that a good lawyer can take easy ethical steps to protect and inform their client before they file the bankruptcy petition.