What NOT to Do Before Bankruptcy
WARNING: These things can really mess up your case!
Many of our clients are tempted to manipulate their property and play fast and loose with their debts in order to get the greatest benefit going into bankruptcy. The problem with these overactive debtors is they don’t realize they can really screw things up! What follows are a few examples of things we have seen over the years that have made us just shake our heads and roll our eyes. PLEASE DON’T:
Use your credit cards to “stock up on necessities” without first asking your lawyer if it will affect your case.
You must be very careful about any large or small purchases you make directly before and after your bankruptcy. The bankruptcy trustee, who is authorized by the court to preside over the bankruptcy, will be looking very closely at your spending.
Transfer a car to a friend or family member without consulting your attorney.
You cannot transfer any major property to a friend or a family member. The bankruptcy trustee will be looking at any recent sales to determine if you got a fair market value. If you didn’t, they will assume that you are attempting to defraud the bankruptcy court by transferring your assets out of harm’s way where they cannot be liquidated in Chapter 7.
Dump non-retirement funds into your retirement account.
In many cases, retirement funds are protected in Chapter 7. This means that the bankruptcy trustee may not liquidate these funds in order to repay your creditors. In other cases, the amount of money you can protect in certain retirement accounts will be capped. Talk to your attorney before making large transfers from your bank accounts to your retirement accounts.
Start depositing your paycheck into someone else’s account because you “don’t know how to handle money.”
This basically looks like you’re trying to hide income. The bankruptcy trustee will assume that any excuse you give for depositing the money in someone else’s account is to protect the money from the bankruptcy process. Any bankruptcy attorney who knows what they’re doing would advise you against this.
Pay off a vehicle “to protect it.”
You probably know that your primary vehicle is protected in a Chapter 7 bankruptcy. If you take what money you have and convert it into equity on your primary vehicle, you probably think you’re protecting that money. However, bankruptcy trustees also understand the process of bankruptcy and they will know that this is simply a way of defrauding your creditors and operating in bad faith. It will jeopardize your bankruptcy.
Put off filing your tax returns in order to hang onto the refund.
The bankruptcy trustee will be looking for your most recent filings and tax returns as part of the bankruptcy process. If you haven’t filed for the year, the bankruptcy trustee will ask why.
Spend a tax refund after the trustee told you to hang onto it.
If the trustee specifically directs you to do something, and you don’t do it, they can terminate your petition for bankruptcy and argue that you operating in bad faith.
Put off taking your second online counseling course and risk not getting a discharge of your debts.
The counseling courses are boring, trivial, and insulting. But as part of your bankruptcy, you’re expected to endure them. Don’t put them off until its too late. It can place your bankruptcy in jeopardy.
Withdraw money from your bank account right before the filing date without telling your attorney because you are sure you’ll “need it for future expenses.”
If you need the money for future expenses, then you can tell your attorney about it and your attorney will make that case to the bankruptcy trustee. If you take out a bunch of cash under the belief that it can’t be liquidated, that’s actually fraud.
Fail to disclose all of your debts in order to hang onto a cherished credit card.
The law requires that you include all creditors in your bankruptcy, not just the ones you don’t want to repay. Even if you do intend to repay a specific card or don’t want to include it in your discharge, it must be disclosed to the trustee.
“Forget” to list your personal injury case.
Regardless of how forgetful you are, the trustee will simply assume that you’re trying to hide assets from your creditors. If you have a case that is currently in litigation, you need to tell your attorney about it.
Wait until the Friday before your sheriff sale to make an initial contact with a bankruptcy attorney to stop the sale.
The best time to file for bankruptcy is when your creditors have initiated a lawsuit against you. In this case, you head off wage garnishments, liens, and bank levies before your creditors can get a judgment against you. Once that money is gone, it’s gone.
Learn More About What Not to Do Before Bankruptcy
Most of the above actions taken by our clients did not spring from a dark criminal past and the thrill of skirting the law. Often, they were mistakes made on the advice of a well-meaning friend, instead of in consultation with their lawyer. Unfortunately, many of these clients shot themselves in the foot. We could have protected them – had they just told us what they were going to do. To learn more about how we can help, contact Benson Law Firm today.