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. Your family member may be required under court order to turn over those funds to a Trustee who will then administer the asset for the benefit of creditors.
Leave Your 401(k) Alone
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. It is all too common for people to tap into their retirement accounts and use them as if they were a savings account. This practice defeats the purpose and reason for the account and ultimately leaves the debtor in a far inferior position as opposed to leaving the retirement account save and secure.
Do Not Transfer Property
Another issue that people do contemplating bankruptcy is that 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. Some debtors wrongfully believe that they are doing nothing wrong by giving something away to lower their asset picture. They are often surprised to learn that the transfer can be undone by a competent bankruptcy trustee.
Do Not Run Up Your Credit Cards
Lastly, people run up debt in anticipation of filing a bankruptcy. The typical situation is someone who has credit card debt and they still have spending room 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.
Consult With An Attorney
These are just some of the major things to not do if you are thinking of filing for bankruptcy. There are several others that are beyond the scope of this article. Most importantly, if you are behind on your bills, struggling to make ends meet and are considering the protections that bankruptcy offers, make sure that you meet with an experienced bankruptcy attorney. Most attorneys will not charge for the initial consultation. There is a wealth of information on the internet pertaining to filing for bankruptcy as well as at your local library. Bankruptcy is something that you want to do with a full and complete knowledge of the process. A wrong step either prior to or during your bankruptcy can cost you money and property. A skilled attorney can help you avoid falling into any traps.
