The desperation caused when finding yourself in a difficult financial situation caused by high medical bills, loss of income, or a recent divorce can consume you emotionally as well as financially. With your debts piling up, you may have come to the conclusion that your only option is filing for bankruptcy to eliminate your debts. Be careful. There are some detrimental financial moves that can hurt your bankruptcy case and your ability to get a discharge - the fresh start you want when the bankruptcy case is over. It’s important that you avoid these mistakes so that your bankruptcy filing is a smoother process, rather than a litigated matter filled with challenges from your creditors, or the bankruptcy trustee.
Don't Transfer Property or Money
People often believe that if they transfer assets, such as houses, cars and cash to relatives or others that those assets will be safe from the bankruptcy proceedings. This is simply not true, and in fact, transferring assets does little to protect your assets. Worse still is that these attempts can be construed as bankruptc fraud by the court, even if you had no intention of concealing the assets.
Remember that just having assets doesn’t mean that you can’t file a bankruptcy. There are assets that are exempt, and based on those exemptions, you may still get to keep that property. Also, just because you file, does not mean that you will necessarily lose your assets. The reality is that most people are able to keep their personal assets when they file for bankruptcy, so hiding them is completely unnecessary.
Don't Payoff Certain Creditors
You might think that you’ll improve your chances of obtaining a bankruptcy if you attempt to pay off some of your debts before you file. This, however, is a bad idea, and can potentially damage your case. If you make a payment to completely pay off one creditor, it may be considered a preferential transfer - that means the creditor received payment in preference over other creditors that similary situated. Because this is not allowed, the bankruptcy trustee will sue the creditor, called a claw back lawsuit, to get the money you’ve paid them back so that it can be distributed equally and fairly among the other creditors. This process will certainly delay your filing and ultimate discharge.
Don't Continue Using Your Credit Cards; No Cash Advances
Perhaps the first thing that you should do if you’re having financial problems that are leading to bankruptcy is to stop using your credit cards immediately. That means no shopping, for clothing, electronics or other luxuries. It also means not taking out any cash advances against your credit cards. These large purchases or advances can be considered an attempt to commit bankruptcy fraud if they are made within ninety (90) days of filing. You can, however, continue to use a debit card that is connected to your bank account to pay for the things you buy.
Don't Deposit Extra Money into your Bank Account
The only money that should be deposited into any of your bank accounts should come from sources of income. That can be from your job, but it can also be from work that you do for others outside your job. Never deposit anything else, like a check for a friend, or money that belongs to someone else that you’re just holding on to. There is absolutely nothing good that can come from doing this immediately prior to a bankruptcy filing. Likewise, don’t accept checks or cash to deposit from friends and relatives that are trying to help you overcome your financial shortfalls. Whether your total debt is $25,000 or $20,000, the likelihood of discharge is the same, so why pay off only a portion of the debt from money given to you by your parents. If you own your own business don’t run your business transactions through your personal accounts, keep everything separate to avoid confusion and the appearance of fraud.
Don't File any new Lawsuits
The moment you file for bankruptcy, all of your assets, including current and future payments awarded from a lawsuit, are transferred to the bankruptcy court. That means that you may not receive any of the money awarded to you, even if your legal case has not been resolved, or if the amount of the settlement hasn’t been determined. Furthermore, legal claims that you haven’t yet filed in court are also transferred to the court. There are, however, state exemptions as to how much, if any, of a settlement or other award can be taken from you. In New York, this amount is limited to $8,550.
Don't Accept Future Payments
Remember that all of the payments that you expect to receive in the future, are part of your bankruptcy estate, the same as the funds that you currently have. In other words, your bankruptcy trustee can, and most likely will, seize future money and use it to repay your creditors. Future payments include such things as tax refunds, or and potentially an inheritance, depending upon when you receive it. While you may not be able to stop those payments from coming to you, be very aware that they effectively become the property of the bankruptcy court until such a time as your creditors are satisfied.
If you’re preparing to file for bankruptcy, and you cannot avoid some of these items, remember that there are “look back” periods for many of them. What that means is the courts will only take into account certain types of transactions during a specified period of time. You may be able to avoid these issues by simply delaying your bankruptcy filing until those time periods have expired. An experienced bankruptcy attorney can guide you based on your unique situation.