What Are Some Important Things Not To Do Before Bankruptcy?
Loading Up on Debt Prior to Bankruptcy
For most, the decision to file a bankruptcy is a tough choice. It is the final step in a long journey that has included great compromise and sacrifice. A person usually experiences a sense relief when deciding to file bankruptcy, and there may be a tendency to “let go” of your debt problem. Unfortunately, in some cases people will “let go” by recklessly spending money and running up credit card balances.
It is not a good idea to incur any new debt before a bankruptcy filing. The Bankruptcy Code has several provisions prohibiting the debtor from loading up on debt prior to filing bankruptcy. One of the most commonly cited is a spending spree prohibition against purchasing “luxury goods or services” totaling more than $550.00 within 90 days prior to filing a bankruptcy case. Another provision makes credit card cash advances presumptively non-dischargeable if taken within 70 days prior to the bankruptcy filing.
The bankruptcy process can relieve you of many financial worries. However, your path to financial recovery can be complicated without the sound advice from an experienced bankruptcy attorney.
Repaying a Friend or Family Member
The bankruptcy laws attempt to ensure that all creditors receive fair treatment during the bankruptcy process. One concern is that the debtor will pay loans to family or friends before filing bankruptcy, and therefore deprive other creditors from receiving payment. Family, friends, business partners, and other creditors who have close relationships with the debtor are called “insider creditors” and transfers to insider creditors can be avoided by the bankruptcy trustee if the transfer occurred within one year before the bankruptcy filing. For instance, if you gave your mother $1,000 from your income tax refund as payment for a debt, and then filed bankruptcy two months later, the bankruptcy trustee can sue your mother to recover the $1,000. To make matters worse, often the debtor could have protected the cash money during the bankruptcy and paid the debt without difficulty after the case was filed.
Incurring Debt After Deciding to File
Some people decide to charge up credit cards or take payday loans just before filing bankruptcy. If you have decided to file bankruptcy, do not incur additional debt. Taking loans with no intention to repay the creditor could be fraud. It could also be a criminal act.
Some people fear that they will lose property when they file bankruptcy. Some will give away or sell property to avoid losing it. In most cases your bankruptcy attorney can protect your property and you will not lose anything. However, once you have transferred an item it is no longer eligible for legal protections. For instance, a car worth $2,000 is likely entirely protected from turnover during your bankruptcy. If you transfer title of this vehicle to your brother before the bankruptcy, the trustee can avoid the transfer, take the car, and sell it to pay your creditors.
Cashing out Retirement
Most retirement accounts are entirely protected during bankruptcy. Unfortunately, some people are unaware of these broad protections and cash out their retirement savings out of fear that it will be taken during the bankruptcy. Sometimes the money is spent to pay off loans which can create preference issues. In other cases the debtor converts an exempt asset (retirement funds) to a non-exempt asset (e.g. a paid off car).
Failing to Be Honest
This is the worst mistake of all because the bankruptcy laws do not protect a dishonest debtor. Failure to truthfully list all of your assets, debts, income and expenses is grounds for dismissal of your case, or you may have to answer allegations of bankruptcy fraud (a federal crime).
If you are experiencing financial difficulty and are considering bankruptcy, discuss your case with Julie O’Bryan, an experienced bankruptcy attorney. She can advise you on the best actions to take before bankruptcy and how to avoid common mistakes. Use the federal bankruptcy laws and protect your property.