6 Things To Consider Before You File Bankruptcy

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If you’re thinking about filing bankruptcy, here are six things that you may innocently or accidentally do with your finances that might hurt your bankruptcy case.  It is always best to talk to a lawyer when planning for bankruptcy this will ensure that your bankruptcy filing goes as smoothly as possible and will help to avoid challenges to your bankruptcy by creditors or the bankruptcy trustee. Consider these items before you file bankruptcy:

  • Stop Using Your Credit Cards

This seems like a no brainer but many people for whatever reason will not stop using their credit cards before you file bankruptcy.  You should stop using your credit cards completely. You can however continue to use debit cards which withdraw directly from your bank account as long as you have funds in the account to cover the charges.

  • Don’t Transfer Money or Property

Many people think that transferring their money to a family members  bank account or putting them in their spouses name will somehow protect the asset.  Transferring assets out of your name won’t protect them from the reach of the bankruptcy court.  Furthermore such transfers could lead a bankruptcy trustee to investigate if you have committed fraud. This is true even if you transferred the property innocently, without any intention to conceal assets.

A few examples of transfers that might get you in trouble include:

changing title to a child’s or spouse’s car which is in your name, into the name of your child or spouse

changing the name on bank accounts, or eliminating your name from accounts which are held jointly with others

eliminating your name as an owner on business ventures

depositing funds or moving funds into bank accounts belonging to others, and

deeding real property in your name to another person, even if it’s a legitimate transaction where real value is paid.

  • Stop Making Unusual Deposits Into Your Bank Account

Do not deposit any money which is not considered salary or payment to you, into your bank account. Examples would be depositing money in your account as a favor to your friend or cahsing someones paycheck for them.  Also if you have a small businesses also should stop conducting transactions for the business through your  personal accounts.

  • Stop Paying Creditors

Many people want to “do the right thing,” and pay certain creditors in full before filing for bankruptcy. For example, they may want to make sure mom’s loan gets paid, or that the people at your credit union who have been very nice to them get paid in full. These transactions will get you into trouble.

You can pay your bills as you would in the normal course of business.  However, you cannot make a payment out of the ordinary, to satisfy a creditor in full. These payments are called preferential transfers.

  • Don’t Sue Anybody

Any legal claim that you have is an asset that can be taken by the bankruptcy trustee, even if the case is unresolved, or if the amount you may be entitled to is undetermined before you file bankruptcy. In fact, even claims that you may have against others that have not been filed in court, is property of the bankruptcy estate. Talk to your attorney on how to handle this kind of claim.

  • Think Before Taking Actions That Would Result in Future Payments

Funds that are not actually in your possession, but which you expect to be receive in the future, are part of your bankruptcy. If you are filing for Chapter 7 bankruptcy, the bankruptcy trustee can take this money and use it to repay your unsecured creditors. Examples include agreeing to accept a future bonus at work, accepting an inheritance which will be paid in the future, or filing tax returns that entitle you to a refund. If you are expecting to receive any payments or money in the future, talk to an experienced  bankruptcy attorney.

Most of the above mistakes can be  fixed by simply by timing when you file your case. There are time periods for many types of transfers or actions — which means the bankruptcy court will examine certain types of transactions only within a certain period of time before you file. By delaying the filing of your bankruptcy until these periods have expired, you may be able to avoid problems.  An experienced bankruptcy lawyer can walk you through the process and help you succeed in obtaining a fresh financial start before you file bankruptcy.

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