Top Five Don’ts Before Filing Bankruptcy
Many people start financial planning when the decision is made to file bankruptcy. Financial planning is good, but doing it yourself can be disastrous. In particular, there are five activities that can cause serious problems in your bankruptcy case, so today’s article is a list of the top five activities to avoid before you file bankruptcy.
5. Don’t use credit cards.
In bankruptcy, as in life, honesty is the best policy. Using credit when you have no intention on repaying is fraud and you can be charged with a crime! The bankruptcy code gives the credit card company legal advantages when credit is used just prior to filing bankruptcy. The result is often that you have to repay credit you use just before filing bankruptcy. Consult with your bankruptcy attorney before you use a credit card convenience check, transfer a credit card balance, take a cash advance, or go on a spending spree.
4. Don’t transfer property.
Transfers just before bankruptcy must be identified and the bankruptcy trustee will take a special interest in your case. The bankruptcy trustee always assumes the worst and will look on any transfer with suspicion. Illegal transfers can be voided by the trustee and you may lose your right to protect the property. For instance, let’s say you sold your car worth $3,000 to your adult daughter for $1. Since this is not an arm’s length and fair transaction, the trustee can avoid the transfer, and force your daughter to turn over the car to the trustee. Since you did not own the car when you filed, you are not entitled to protect the vehicle with your legal exemptions. The trustee will now sell the car to pay your creditors and you lost a $3,000 asset. If you want to sell or transfer property, speak with your bankruptcy attorney. Your attorney can show you the right way to transfer the property without causing a legal mess.
3. Don’t repay loans to friends or family.
Money used to repay a loan to a friend or family member within a year of your bankruptcy filing can be avoided by the bankruptcy trustee. The trustee can sue your friend or family member for the money.
2. Don’t pay more than $600 to one creditor.
Like payments to friends or family members, payments that exceed $600 to any one creditor within 90 days of the bankruptcy filing can be avoided. Speak with your bankruptcy attorney before paying creditors.
1. Don’t cash out retirement plans or 401k’s.
Retirement plans are often fully protected by bankruptcy laws, so do not touch these accounts until after you file bankruptcy. Once the money is moved it is more difficult to protect and you may lose your retirement funds.
The bankruptcy code contains many traps for the unwary. A bankruptcy professional can help you avoid these common traps. Don’t wait to speak with a bankruptcy attorney and discuss your financial situation. Get experienced advice on how to obtain the help you need.