Perhaps you’ve found yourself in a difficult financial situation caused by high medical bills and loss of income, or a recent divorce. Your debts are piling up, and there’s simply not enough money to pay your creditors what you owe them. If you have come to the conclusion that your only option is filing for bankruptcy to eliminate your debts, be very careful. There are some detrimental financial moves that can hurt your bankruptcy case. It’s important that you avoid these mistakes so that your bankruptcy filing is a smoother process, rather than one fraught with challenges from your creditors, or the bankruptcy trustee.
Transferring 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 a complete fallacy, and in fact, transferring assets does little to protect your assets. Worse yet, these attempts can be construed as fraudulent by the court, even if you had no intention of concealing the assets.
Remember that just because you have assets, it doesn’t mean that you can’t file a bankruptcy. 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.
Paying Off 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 misguided, and potentially damaging to your case. If you make an out-of-the-ordinary payment to completely pay off a creditor, it is called a preferential transfer. What that means is the creditor received payment in preference over other creditors that hold the same weight. Oftentimes, 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. This process will delay your filing and ultimate discharge.
Using Your Credit Cards
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. You can, however, continue to use a debit card that is connected to your bank account to pay for the things you buy.
Depositing 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. Likewise, don’t accept checks or cash to deposit from friends and relatives that are trying to help you overcome your financial shortfalls. 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.
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 some states, it may be the entire amount, in others in may be a fraction of the total, based upon what you need to live. Still other states allow no exemptions whatsoever.
Accepting 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.