Is there anything I should NOT do if I’m thinking of filing for bankruptcy?

There are several things that you should not do if you are considering filing for bankruptcy under either Chapter 7 or Chapter 13.  One of the things that people do which is a prohibited act is repaying a family member or a friend within a year of filing for bankruptcy.  This is known as a preferential payment and the court can undo that type of payment or repayment.

The other thing people do is they borrow from their 401(k) in an effort to repay their creditors only to find that they did not have enough money in their 401(k) to repay all of their creditors and now they have exhausted all of their retirement.  The retirement accounts would have been protected in either a Chapter 13 or a Chapter 7 bankruptcy.  Thus, there is no reason to touch that money, it’s best to leave that alone.

Another issue that people do contemplating bankruptcy is they transfer property out of their name.  They take a paid off vehicle and transfer it to a friend or relative or their brother for less than fair market value in an effort to avoid it being used to repay creditors.  Trustees in both types of cases can undo those transactions by using their long arm powers.

Lastly, people run up debt in anticipation of filing a bankruptcy.  The typical situation is someone has credit card debt and they still have room to go on the credit cards before they are maxed out.  Once they know they are filing for bankruptcy or considering filing for bankruptcy, they will run up the debt on those credit cards in an effort to get as much mileage as possible out of their bankruptcy filing.  Creditors can object to transfers made or purchases made or cash advances taken within a certain amount of time prior to filing.  So if you are thinking of filing for bankruptcy, I would recommend that you do not use your credit cards anymore and that you do not take any cash advances on those credit cards.

 

 

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