If you are thinking about filing bankruptcy, these are some things NOT to do. It will make your life and your attorney’s life much easier if you follow these rules.
1. Don’t leave out any assets when preparing your petition. Our job is to make your bankruptcy as easy as possible for you and to warn you if we see any problems. We can’t do this if we don’t know everything.
This means anything you have your name on, even if it isn’t yours. Things like being on your parent’s bank account or on a child’s car title. If we know about these assets that are in your name only, we can prepare your petition to avoid suspicion. Any time you leave something off the petition and the trustee discovers it, the trustee will think you were hiding it from him/her. Trustees are by nature suspicious, don’t give them a reason to be.
2. No new charges/extension of credit/borrowing. In bankruptcy, you are either not going to pay or pay less than what is owed to your creditors. The last thing you want to do is to borrow money that you know you won’t pay back. So don’t run up your credit card before filing. Also included in this category are cash advances, credit card convenience checks and balance transfers. This and hiding assets are the primary reasons the judge would deny your discharge. Anyone with over $100,000 in unsecured debt will get extra scrutiny and will have their credit card statements looked at.
Your attorney may sometimes discuss with you getting a mortgage or a car loan before filing. If you are thinking about doing either, make sure to talk to your attorney first.
3. Don’t repay friends or family. Friends or family are considered insiders for bankruptcy purposes and the bankruptcy requires them to be treated the same as other creditors. So before filing, you can’t decide you are going to just pay your friends and family and not pay your general unsecured creditors anything. After the bankruptcy, you can repay them whatever you want, just not before.
4. Don’t gift or give away anything with receiving fair market value for it. If you have valuable assets that you give away or gift before filing, the trustee can demand the return of the gift from the receiver if you didn’t receive fair market value for it. If you did receive something in exchange, you should be able to trace the money or show the asset on your schedules.
5. Don’t cash out your retirement to pay bills. It breaks my heart to talk to a client during the initial consultation and find out they drained their retirement to try and pay the credit cards. Pretty much all retirement is exempt in bankruptcy, so even if you had a large 401(k), the trustee can’t use it to pay your creditors. Besides, you will need that money in the future when you retire.
6. Lastly a catch-all: Don’t make any major financial decisions without talking to your bankruptcy attorney first. Marriage, divorce, major purchases, mortgages, reverse mortgages, etc. may affect your bankruptcy. We need to know about it beforehand to make sure everything will still go smoothly. We may OK it or recommend delaying it until after your bankruptcy is filed or recommend against it completely. You’re paying us good money to help you with your bankruptcy, so let us help you. Don’t trust what you read on some random webpage, friends, non-bankruptcy attorneys or others. Get your info from the source.
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