What You Shouldn’t Do Before Filing Bankruptcy
You may have read articles about what you should do before filing a bankruptcy case. However, there are several things that you should avoid doing before filing a Chapter 7 or Chapter 13 bankruptcy case. Some actions you take in the months before filing a bankruptcy petition can hurt your chance of discharging your debts. In some cases, a misstep could result in loss of property or a dismissal of your bankruptcy case. Discussing your debt problems with a bankruptcy lawyer can often help you avoid bankruptcy mistakes.
The bankruptcy lawyers of Scura Attorneys at Law want to remind you of the following ten things to avoid doing before filing for bankruptcy relief:
1. Don’t Ignore the Proper Timing of Your Bankruptcy Filing
The timing of a bankruptcy filing can be very important. You do not want to rush into a bankruptcy filing, but you also do not want to wait too long to file your case. Some reasons why a person may need to file bankruptcy quickly include pending wage garnishments, collection lawsuits, foreclosures, and repossessions. A bankruptcy attorney may advise you to file quickly to stop certain debt collection actions to protect assets.
However, bankruptcy law restricts how often you are eligible to receive a bankruptcy discharge. For instance, individuals must wait eight years between Chapter 7 bankruptcy filings. Therefore, rushing into a bankruptcy filing without considering alternatives to bankruptcy may not be wise. It is best to gain advice from a bankruptcy attorney before filing a Chapter 7 or Chapter 13 case to ensure that bankruptcy is the best option available to you to resolve your debt problems.
2. Don’t Incur New Debt
Some debts incurred within a few months of filing for bankruptcy relief may not be dischargeable. A creditor may file a motion to deny discharge of debts incurred for luxury items or services within 90 days of the bankruptcy filing. Cash advances within 70 days of filing bankruptcy may also be non-dischargeable. Make sure that you disclose all recent use of debt or cash advances to your bankruptcy attorney.
3. Don’t Dispose of Assets
Concealing, transferring, or selling assets before filing for bankruptcy relief can result in a denial of discharge and other penalties, including criminal penalties. It may be necessary to sell some assets to pay necessary living expense. If an asset is sold for fair market value and the money is used to pay living expenses, you may not be penalized. However, it is always best to gain advice from a bankruptcy lawyer before selling or transferring assets if you are experiencing debt problems.
Concealing assets or failing to disclose all property you own is bankruptcy fraud. You can be punished with fines and prison sentences. Information you are required to disclose when filing a bankruptcy case includes, but is not limited to:
· All property in which you own an interest at the time of the bankruptcy filing;
· Property that you have transferred within a specific period before filing your bankruptcy petition;
· Closed, transferred, or sold financial accounts;
· Items in storage units;
· Items in safety deposit boxes;
· Property that you are holding for another person; and,
· Gifts or contributions made within a specific period before filing for bankruptcy relief.
4. Don’t Empty Retirement Accounts
Most retirement accounts are protected from creditors in a bankruptcy action. However, if you remove funds from your retirement accounts and place them in other accounts or hold the cash, the funds are no longer protected. If you need to withdraw retirement funds to pay living expenses, check with your bankruptcy lawyer before doing so to avoid losing those funds after filing your bankruptcy petition.
5. Don’t Access Your Home’s Equity to Pay Debts
Bankruptcy exemptions may protect the equity in your home. Unfortunately, many individuals withdraw the equity from their home to pay debts before they consult a bankruptcy attorney about bankruptcy options. Many of the debts they paid using the equity from their home could have been discharged in full through a bankruptcy filing. However, once they use the funds from the equity in their home to pay those debts, they create a secured debt against their home that they must pay if they want to keep the home, even if they file for bankruptcy relief in the future.
6. Don’t Fail to File Income Tax Returns
Bankruptcy laws require that you file all required tax returns and provide copies of your most recent tax returns to the bankruptcy trustee. Your tax returns are crucial for establishing your income and determining any outstanding tax debts. Trustees also review tax returns for information regarding potential assets or fraudulent transfers. If you fail to file required tax returns, your bankruptcy case could be dismissed.
7. Don’t Selectively Pay Debts
It may be tempting to pay certain debts before filing bankruptcy so that you are not obligated to report the debts on your bankruptcy forms. However, even though you may not be required to report the “debt” because it was paid, you are required to report payments of certain debts paid within 90 days of filing your bankruptcy petition.
If the debt was paid to an insider (family member, friend, business associate, etc.), you are required to report payments to that person within one year of filing a bankruptcy case. The bankruptcy trustee may file an adversary proceeding (a lawsuit within your bankruptcy case) to get the money back from the person or party you paid. You may not be concerned about a bankruptcy trustee suing a credit card company, but you do not want a friend or family member to face a bankruptcy lawsuit.
8. Don’t File If You Are About to Receive Substantial Assets
If you anticipate receiving a tax refund, inheritance, lawsuit settlement, or other substantial asset in the future, you need to discuss this matter with your bankruptcy lawyer. Depending on the asset and the value of the asset, bankruptcy exemptions may not protect the full value of the property. Your attorney may suggest alternatives to filing bankruptcy or timing your bankruptcy filing to minimize the risk of losing all or part of the asset.
9. Don’t Fail to Review All Bankruptcy Forms for Accuracy
When you sign your bankruptcy forms, you certify under oath and penalty of perjury that the information provided to the court is true and accurate to the best of your knowledge. In other words, the information in your bankruptcy forms should be complete, truthful, and correct. Knowingly or fraudulently providing inaccurate, dishonest, or incomplete information can result in substantial fines and prison sentences, in addition to your bankruptcy case being dismissed.
Before signing your bankruptcy forms, read each page carefully to ensure that the information is correct and complete. If you do not understand a question or you are unsure what information is required, seek the advice of a qualified bankruptcy attorney. Honest mistakes can typically be corrected by filing amended bankruptcy forms, but it is best to double check all information to avoid mistakes, if possible.
10. Don’t Fail to Recognize the Value of Experienced Bankruptcy Advice
Bankruptcy law is complex. Filing a Chapter 7 or Chapter 13 bankruptcy case can be challenging if you are unfamiliar with the Bankruptcy Code, rules, procedures, and forms. Because a bankruptcy filing has a significant impact on your current and future financial wellbeing, it is best to seek the advice of an experienced bankruptcy lawyer.
A bankruptcy attorney understands how to utilize the bankruptcy system to help individuals get out of debt while protecting their property. Attorneys understand court requirements, trustee preferences, bankruptcy forms, and debtor rights. Working with a bankruptcy lawyer can make filing a bankruptcy case less stressful. It can also decrease the chance of making a costly and time-consuming mistake.
Written by John J Scura III, Esq. Partner, Scura, Wigfield, Heyer, Stevens & Cammarota, LLP
John has been Certified by The Supreme Court of New Jersey as a Civil Trial Attorney. Whether it is a personal injury case, bankruptcy case, litigation case or other type of matter, John wants his clients to participate in the decision making process toward solving their problem in the best way possible.