7 Deadly Sins Before Bankruptcy
OK I know that sounds a bit dramatic – but it got your attention. I am asked all the time what not to do before bankruptcy. So here is my list of seven things that have the potential to get you into trouble prior to your case filing:
1.Don’t make any unusual transactions: Making large withdrawals of cash or moving funds into somebody’s bank account are not good things to do. This looks like some kind of attempt to hide you money especially if you do not do this kind of transaction on a regular basis.
2. Don’t pay creditors: Any creditor that is paid more than $600 prior to the bankruptcy case filing needs to be disclosed in the bankruptcy paperwork. The reason for this rule is any thing more than that may be an avoidable preference meaning a trustee can seek to suck that money away from the creditor back into your bankruptcy. If you have a few dollars its better to pay your bankruptcy lawyer so you can file your case quickly and not delay filing for months and months as you try and save extra money to pay for their services.
3.Don’t file if you are about to receive a large sum of money: The word “bankruptcy” means the bank is broken. The bank is not broken if you have a large chunk on money on hand or are about to receive a large amount of money. Make sure you discuss this with your attorney as you prepare to file for bankruptcy. There may be reasons to speed up the filing of the case or there my be reason to wait to file your case – each situation is different but talk to your attorney about this before you file.
4. Don’t run up new debt: Believe it or not some people think that its a good idea to max out their credit cards then run into bankruptcy court to get rid of the debt they just ran up. Think about it for a second – does that pass the smell test? Bankruptcy is designed for honest people down on their luck not for people trying to game the system. If you were thinking about scamming your creditors by filing a bankruptcy when you ran up the debt you probable need to rethink file bankruptcy. They current bankruptcy system does a very good job of finding out those who are trying to scam the system.
5. Don’t drain your retirement funds: Another big mistake we see are people with the best of intentions by trying to pay off their creditors by taking money out of IRA’s or 401K’s to pay toward their debts. The problem usually is they cannot pay off the full debt so they try to pay some of the debt with what they have thus depleting their retirement savings and still leaving them with excessive debt. Then they have no more retirement savings (This is usually protected from creditors in a bankruptcy) and still need to file for bankruptcy. Always work with an attorney before you drain your retirement accounts to pay on old debts.
6. Don’t provide inaccurate information: When you file bankruptcy you are asking a Judge to relive you of excessive debts. You need to make every effort to be open about your situation and open about your assets. Don’t hold back or hide anything – this will only get you into trouble. Make sure you double check the information you file with the court so you do not mislead or give a false impression to your creditors, trustee, or Judge. When in doubt talk it over with your lawyer – that what she is being paid for so make sure you get the best advice possible.
7. Don’t keep it to yourself: Once you file don’t hide from your creditors. Let them know you filed and who your attorney is. This will help your case go smother and help you start to get a fresh start quicker. As you know I’m big on rebuilding your credit quickly after you file so you want the creditors to know that there was a bankruptcy and the debts are being dealt with in a legal and fair manner.
You can bounce back after a bankruptcy – it is not the end of the world but you need to do it in a proper and fair manner and avoid these 7 deadly bankruptcy sins.