Taking the wrong actions either before or during your bankruptcy can badly damage your chances of obtaining a favorable outcome. Understanding your rights and responsibilities can help assist you to minimize your risks. Consult with a bankruptcy lawyer to help you navigate the pitfalls commonly encountered by those seeking bankruptcy protection.
Here is a DON’T list, or What NOT to do before filing bankruptcy.
Don’t Abuse Your Creditors
DON’T pay back to relatives or business associates who have lent you money. Payment to an “insider” (which includes relatives, friends, and business associates) within one year before you file bankruptcy is deemed “preferential treatment.” The trustee will “scratch back” these preferential payments then divide those funds between all of your creditors. Payments of $600 or more, in the aggregate, to any other creditor within 90 days before your case is filed are also considered preferential payments.
DON’T talk to your creditors directly after you have filed for bankruptcy. Tell them to talk directly to your bankruptcy lawyer. If you receive mail from any creditor, be sure to forward it to your attorney immediately. Communications with creditors after your case is filed can only make things worse.
DON’T keep a creditor off your petition for any reason. If you intend to pay them back, you can reaffirm the debt or repay the creditor once you receive your bankruptcy discharge. You must list all of your debts and all of your assets in your bankruptcy schedules.
Don’t Abuse Your Credit
DON’T run up a lot of bills immediately before you file. If you max out your credit cards or take out a loan before you file, the court could find your petition to be fraudulent and dismiss it, or prevent those individual debts from being discharged.
DON’T buy any luxury items prior to filing for bankruptcy. You may use credit to purchase necessities only.
DON’T borrow from or withdraw 401k, IRA, and ERISA qualified savings and retirement plans to pay bills. Early withdrawal of these funds can lead to liability for penalties and taxes. These will not be discharged in your bankruptcy. Generally speaking, we can fully exempt retirement accounts in your bankruptcy.
DON’T take out a loan on your home to pay unsecured debts like credit cards, utilities, or medical bills. You may be converting debt which would have been discharged in bankruptcy into debt which you will still have to pay in order to keep your home.
DON’T transfer property you own to someone else to avoid having to list it as an asset. You must list these types of transfers in your Statement of Financial Affairs. The Bankruptcy Code classifies these kinds of transfers as fraudulent, which can result in denial of your discharge. In addition, the trustee can void the transfer and recover the property, anyway.
DON’T attempt to sell your property for less than what it’s worth. This will not reduce the amount you eventually have to repay. And you or the subsequent purchaser may have to pay the difference.
Discuss Your Choices with an Attorney
In some cases, we can correct mistakes through amendments to your bankruptcy schedules. Other forms of conduct, however, can be fatal to your case. Be sure to discuss any actions you are contemplating with your bankruptcy attorney before you act.