December 2, 2020
5 Things You Should Not Do Before a Chapter 7 Bankruptcy
Filing for bankruptcy is often something that people do when they see no other alternative. If you’re seriously thinking of filing for Chapter 7 bankruptcy, there are a few things that you should avoid doing before filing a petition. Any of the following could land you in serious trouble with the bankruptcy court.
1. Don’t Pay Off Your Favorite Creditors
Perhaps you have a creditor or two that has a special place in your heart, owing to how they’ve always been there for you. It would be great to pay them off and not have to include them in the bankruptcy action. Unfortunately, this is the type of thing that the court is likely to frown upon.
By all means do make payments to all of your creditors as you prepare for the bankruptcy filing. Just make sure that they are typical of the amounts you usually pay each month. If you pay off certain accounts in full, that could be considered a preferential transfer and be voided by the bankruptcy court, forcing that creditor to repay any monies you paid them.
2. Transferring Assets or Property Ownership Will Create Problems
Attempting to move money or assets away from you will not make things any easier. In the weeks or months before filing for bankruptcy protection, do not move cash into the accounts of a relative or friend. You also want to avoid transferring ownership of vehicles, real estate, and other assets to children, parents, or friends. If you have joint financial accounts with other people, removing your name from them could also cause problems.
This is sometimes done due to fear about those assets having to be turned over to the trustee. Keep in mind that many of them might remain yours if the court considers them to be exempt assets. Attempting to disassociate yourself from the assets could raise questions that you would rather not answer.
3. No Running Up Credit Card Balances
The fact that some, but not all forms of unsecured debt are discharged in a Chapter 7 does not mean it’s time to go shopping. The court will not be happy with charges that are inconsistent with how you’ve used credit over the past year. If your usage in the last couple of months seems excessive and you can’t prove that the charges had to do with securing necessities, you could find your case dismissed.
4. Do Not Attempt to Hide Future Payments
Not everyone realizes that payments you’re expected to receive in the coming months count as assets during a bankruptcy action. The payment in question could be a bonus at work that you already know is coming, some sort of inheritance that you will receive as the estate of a loved one is settled or even a tax refund that you expect to receive over the next few months. In any case, report those anticipate payments to the court. Full disclosure will avoid problems down the road.
5. File a Suit
If you’re considering the idea of filing suit against someone, set the thought aside until after the Chapter 7 is discharged. There are two benefits to this approach. One is that you have more time to mull over the prospect and determine if it’s really worth the time and effort to file the lawsuit. Second, a potential award from the pending suit could be included as an asset that you might have to surrender to the trustee. Always check local laws to make sure that postponing the filing does not put your claim outside the applicable statute of limitations.
There are more actions that you should not take when considering a Chapter 7 bankruptcy. Talk with a lawyer and learn more about what to avoid and what you should do. Following the advice of your attorney will minimize the risk of any complications that could hold up the process or possibly lead to a dismissal of your petition.