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What Not To Do Before Filing Bankruptcy

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What Not To Do Before Filing Bankruptcy

People file for bankruptcy for any number of reasons, from sky-high medical expenses to loss of income and the inability to make their mortgage payments each month. In some cases, people have spent beyond their means, and now it’s time to repay their debts. 

But filing for bankruptcy isn’t a shameful or immoral act. In many cases, it’s a responsible, legal solution to address debt that can’t be paid down. However, it’s important to know what you should and shouldn’t do before filing. And although we can’t elaborate on every mistake that can be made here, we can describe some of the biggest bankruptcy mistakes people make before filing.

To protect yourself and those you love, do not do any of the following things if you anticipate you will soon file for bankruptcy. 

Do Not: Try to Transfer or Hide Assets

If you’ve transferred any assets to another party before declaring bankruptcy, you’re not gaining any protection. If assets are transferred in anticipation of filing for bankruptcy, a trustee can recover those assets in a Chapter 7 bankruptcy since the transfer would rightfully be seen as fraudulent.

In all ways, it is hugely important to be transparent and honest about your property and assets because if you aren’t, your bankruptcy attorney can’t protect you with bankruptcy exemptions or other legitimate bankruptcy planning strategies. 

Do Not: Repay Family Members, Friends, or Business Associates

What happens when you file for bankruptcy is that family members, friends, and business associates are deemed what the court calls ‘insiders.’ Repaying an ‘insider’ in the 12 months before declaring bankruptcy allows a bankruptcy trustee to reverse these payments as they have been given special treatment compared to all the other creditors. 

You will have to repay the trustee, and in some cases, the trustee can go after your family or friends to recoup those payments. 

Do Not: File Bankruptcy While Your Name is On Another Person’s Property

If your name is on a property you share with someone else, you will probably be considered a 50% owner of the property. And, for example, if your name is on your mother’s mortgage, you will likely be deemed a 50% owner and the court can go after her house. 

Make sure to get your affairs in order before filing for bankruptcy or you – and your family, friends, and business associates – may pay a very high price. 

Do Not: Run Up Credit Card Charges

90 days of filing for bankruptcy

It may be a tempting way to try and skirt the law, but running up credit debt in anticipation of filing for bankruptcy won’t protect you from having to repay those charges during a bankruptcy filing. 

The law dictates that charging more than $1,000 on any card within 90 days of filing for bankruptcy without the intent to pay the bill for these charges is fraud. Plus, nonpayment of these charges can result in a judgment that garnishes your wages and bank accounts.

In fact, if you believe you will be filing for bankruptcy in the near future, you should cancel all of your credit card accounts immediately. 

Do Not: Cash Out Retirement Instruments

Creditors by law cannot touch your 401k, 403b, or most IRA accounts as long as the money stays in those instruments. The minute you cash out and the money hits the bank, the court can legally seize your nest egg to pay off creditors, which would leave most people with no retirement savings to speak of.

Do Not: Hire a Cheaper Attorney With No Bankruptcy Experience in an Attempt to Save Money

Filing for bankruptcy should always be done through an attorney for bankruptcy. The average person can’t possibly know all the laws and implications that govern a bankruptcy filing, and any attempts to use a cheaper, less experienced attorney will likely cost you a lot more in the end.

Do: Call the Bankruptcy Law Experts

At the end of the day, to protect yourself and those you love, talk with an experienced bankruptcy attorney, disclosing all debts and creditors from family members to mortgage lenders. 

Your attorney can help with debt elimination and minimize the likelihood a trustee will reclaim payments made during a look-back period. The Indiana bankruptcy attorneys at Sawin & Shea, LLC are specialists in navigating the bankruptcy process. If you’re considering filing for bankruptcy, we invite you to call us at 317-759-1483 or request your free consultation online. 

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