If you are struggling with debts you cannot pay, you may want to consider filing for bankruptcy relief. A bankruptcy discharge can wipe away most, if not all, unsecured debts to give you a fresh start to recover from a financial crisis. However, some financial decisions you make in the days and months before filing a Chapter 7 or Chapter 13 case can make it more difficult for you to receive a bankruptcy discharge or to get the fresh start you need to begin rebuilding your finances.
Here are seven things that you should avoid doing before filing bankruptcy:
1. Don’t Incur New Debt
Incurring debt within 90 days of filing a bankruptcy petition could result in a denial of discharge for that particular debt. Even though you file a bankruptcy case, you could continue to owe the money for these items. Luxury items are items that are not required “necessities,” such as utility payments, food, clothing, and rent payments.
2. Don’t Dispose of Assets
Disposing of, concealing, or transferring assets before filing a bankruptcy case can result in criminal penalties, denial of discharge, and adversary complaints by the Chapter 7 trustee to reclaim the assets for the bankruptcy estate. You may sell an asset for fair market value to pay for necessary living expenses, but it is always best to check with a bankruptcy lawyer before selling any assets if you are contemplating a bankruptcy filing.
3. Don’t Pay Insiders or Pay Large Amounts to Certain Creditors
Paying back debts to family members, friends, and business associates within a year of filing a bankruptcy case may result in problems for your friends and family members. A Chapter 7 trustee may file an adversary complaint to recover the money you paid to insider creditors. Also, if you selectively pay other creditors large sums of money, those creditors may be required to turn over those funds to the trustee. While you may not care about the bankruptcy trustee suing a credit card company, you certainly do not want the bankruptcy trustee filing a lawsuit against your family members or friends. After your bankruptcy case closes, you can repay debts to family members and friends, if you choose to do so.
4. Don’t Empty Your Retirement Savings or Home Equity Account
Bankruptcy exemptions allow you to protect a certain amount of equity in some of your property. These exemptions typically protect all the equity in your home and the money in your retirement accounts when you file a Chapter 7 or Chapter 13 bankruptcy case. Therefore, talk to a bankruptcy lawyer before using retirement funds or the equity in your home to pay debts that you can discharge through bankruptcy.
5. Don’t Fail to Consider the Timing of Your Bankruptcy Filing
A bankruptcy lawyer can review your financial situation to determine the best timing for your bankruptcy filing. You may need to file quickly to prevent a foreclosure, repossession, or other debt collection action. However, you may not want to file a bankruptcy case immediately before receiving a personal injury settlement, tax refund, inheritance, or other substantial asset, which a trustee could seize to pay your debts. You may also need to wait to file a bankruptcy case if you have previously filed for bankruptcy relief. You can file bankruptcy again, but you can only receive a bankruptcy discharge every few years.
6. Don’t Forget to File Your Tax Returns
The Bankruptcy Code requires debtors to file all required tax returns and provide copies of tax returns to the bankruptcy trustee. Your bankruptcy case may be dismissed for failing to file and provide copies of required tax returns.
7. Don’t Provide False or Inaccurate Information
When you sign your bankruptcy petition and forms, you certify under oath that the information you provide is accurate, complete, and truthful. Your certification is under penalty of perjury. While honest mistakes may not lead to criminal penalties, they can lead to a dismissal of your bankruptcy case. Working closely with an experienced bankruptcy lawyer to prepare your bankruptcy forms can reduce the risk of mistakes and errors.
Are You Ready to Get Rid of Your Debts? Call a Mentor Bankruptcy Attorney for More Information
Contact our office by calling (440) 255-0832 or by using the convenient contact form on our website. You may also email our office to request additional information about bankruptcy or to request a consultation with a Mentor bankruptcy attorney.