What to Avoid Before Filing Bankruptcy

: Reese Baker & Associates

  Filed under: Debt

There are quite a few mistakes that individuals make just before filing bankruptcy. These mistakes are made either intentionally with the belief that they won’t be caught by the bankruptcy trustee or “presumptively”, without full knowledge that they are to be avoided. The actions you want to avoid before filing bankruptcy include paying down debt, withdrawing money from retirement accounts, incurring new debt, or transfer assets. By performing any of these activities before you file bankruptcy could jeopardize your debt-free, fresh start.

Don’t Pay Down Your Debt

If you make any debt payments over $600 to any creditor three months before filing bankruptcy, the bankruptcy courts view this as preferring one creditor over the other. The courts can seize this money from the creditor and disperse it equally among all your creditors. Payments made to friends or family can be retroactively seized for up to a year. If you have decided to file for bankruptcy protection, discuss any payments to creditors with your bankruptcy lawyer beforehand. It also doesn’t make sense to pay down debt that has the potential to be discharged in bankruptcy anyway.

Don’t Withdraw From Your Retirement Accounts

Because most retirement accounts are shielded from bankruptcy, it’s never a good idea to take out funds from your retirement accounts before filing bankruptcies. A major mistake some individuals make just before filing bankruptcy is to withdraw funds to pay down debts that otherwise would have been wiped out in the bankruptcy discharge. Additionally, once the money is withdrawn it can be added to your bankruptcy estate which the bankruptcy trustee can draw from in order to pay back your creditors.

Don’t Incur New Debt

When taking out new debt 90 days before you file for bankruptcy protection, it may look like you are taking out new debt with no intention of paying it back. Likewise, the bankruptcy trustee may argue that the debt should not be discharged in your bankruptcy. While it’s okay to make normal payments needed for approved living expenses, any credit card charges totaling more than $600 on any single credit card or any cash advances on credit cards totaling more than $900.00 will most likely be considered for “luxury items” and you will be forced to pay them back.

Don’t Transfer or Sell Assets

It’s all too tempting to sell or transfer assets before a bankruptcy filing in an attempt to keep them out of the bankruptcy process. If you do sell or transfer property, you must be prepared to justify it with the bankruptcy trustee. If you are found to have attempted to defraud the bankruptcy court or your creditors by moving around money or property your case could be dismissed or worse, you could be charged with criminal penalties. Consult your bankruptcy attorney if you need to sell property in order to make a payment before you conduct the transition.

In order to successfully receive a bankruptcy discharge from the bankruptcy courts, you must be upfront and completely honest with your College Station bankruptcy attorney. If you have already performed one of these pre-bankruptcy mistakes, makes sure to talk with your bankruptcy lawyer about how best to proceed.