When you’re facing a financial dilemma and need to wipe out debt that you cannot afford to pay, there are important steps to take before filing bankruptcy that can affect the outcome of your case. A bankruptcy discharge can wipe out debt and help you with a fresh start to work towards building your credit up again. There are, however, five important things you need to avoid doing before you file bankruptcy.
Don’t Acquire New Debt
A big mistake to make just before filing bankruptcy is to go out and take out new loans or max out your credit cards. If you take out loans thinking that you can get away with not paying the creditor back by filing bankruptcy, think again. The court could view the loans as fraudulent and you could potentially face criminal charges.
The Bankruptcy Code specifically prevents debtors from going on spending sprees for luxury items or services within three months of filing bankruptcy. Also, purchasing merchandise and maxing out your credit cards or taking cash advances from your credit card within 70 days of filing bankruptcy can mean those debts will not be dischargeable through bankruptcy.
Don’t Transfer Your Property
People worry about losing their personal property by filing bankruptcy and in order to avoid losing it, some people try to give property away or place it in a family member’s name before filing. The common misconception is if the property is in someone else’s name, it will be safe from legal action. If you own a motorcycle or boat and the value is under $5000, by transferring the title to a family member or friend so it won’t be in your name can cause the trustee who handles the bankruptcy case to seize the property and sell it to pay your debts.
Paying Money Back to Family or Friends
The courts follow bankruptcy laws stringently and bankruptcy laws are set, in part, to ensure that creditors are all treated fairly during a bankruptcy proceeding. You will be asked whether you have paid a lump sum of money back for a personal loan from family or friends. If you have done so and have not paid other creditors, the trustee may look at this as unfair to the other creditors. If you have paid a friend $2000 for a personal loan when you got your tax refund back, the bankruptcy trustee could sue your friend to get the money back to evenly disperse between all creditors.
Hold onto Your Retirement Money
Some people worry that their retirement account can be compromised when they file bankruptcy and they cash them out because they’re afraid the court may take their money. Others cash out retirement accounts to pay for debts that will be discharged during the bankruptcy. In most cases, retirement accounts are protected during bankruptcy and cannot be touched. It’s best to discuss your finances with a licensed bankruptcy attorney to see which assets will be exempt in court and to get legal advice on paying your debts or cashing out financial accounts.
When you tell the truth about your debts, income, assets and financial history, you will be protected by bankruptcy laws. If you fail to list all your income, assets, household expenses or debts your case may be dismissed instead of discharged and you could potentially face being charged with bankruptcy fraud which is a federal crime.