What NOT To Do Before You File Bankruptcy
Here are a few things that you should not do before filing bankruptcy.
1. Don’t transfer assets to someone else. Often people believe that they can dodge a creditor by transferring title on real estate or an automobile to a family member or friend. Such a transfer constitutes a fraudulent conveyance and can ultimately be “undone” by creditors in a civil action or the trustee in bankruptcy. All asset transfers which occur within two years of filing your bankruptcy must be disclosed in your bankruptcy petition.
2. Don’t pay off any creditors, even your family, prior to filing bankruptcy. The bankruptcy process attempts to treat all creditors equally. If you owe your mother and you owe Visa, do not pay off your mother immediately prior to filing your bankruptcy case. Such payments are called insider preferences. The trustee in your bankruptcy can take back any funds that you paid to your mother which may create problems for your mother if she has already spent it.
3. Don’t dig the hole deeper. People on the cusp of filing bankruptcy often decide to run-up their credit card debt because they believe the debt will be “wiped-out” in their bankruptcy. They may take a vacation or buy some sort of extravagance. Creditors, especially credit cards, scrutinize credit purchases made 90 days prior to a bankruptcy filing. If they believe a purchase to have been a luxury item, the debt could ultimately be deemed “non-dischargeable” and you would have to pay them back after your bankruptcy.
4. Don’t mortgage your home to pay off debt. People often decide to take out a home equity line or refinance their mortgage to consolidate and pay-off their debt. Sometimes that’s a good idea. But sometimes it’s not. Talk to a bankruptcy attorney before you take the plunge into more debt which could jeopardize your home. Your home may be protected in bankruptcy.
5. Don’t liquidate your 401(k). I discussed this in a previous blog post. Read that post. Suffice it to say, don’t withdraw retirement funds to pay current debts before speaking with your bankruptcy attorney.
6. Don’t lie to your bankruptcy attorney. We all have an instinctive desire to make ourselves look good; play up the positive and down play the negative. If you made the decision to sit down and talk to a bankruptcy attorney, don’t sugar-coat the truth. It won’t help and will make it more difficult for your attorney to identify the important issues in your case and take the necessary legal steps to protect your assets and maximize the discharge of your debts within the bounds of the law.
Fear causes us to make bad decisions in all aspects of our life and the same holds true for our finances. When the wolf is at the door, we act first and then think about it later. Before you make the same mistakes that countless others before you have, do yourself a favor and call the Law Offices of Mark A. Bandy, P.C. for a free initial consultation.