What Not To Do Before You Declare Bankruptcy
Once you decide that a chapter 7 bankruptcy filing is in your future, you must be especially careful about certain financial transactions. Not only could making one of the 4 below moves affect your ability to finalize your bankruptcy, but could also land you in hot water with the bankruptcy court. Read on to learn what not to do before you file.
1. Run Up Your Credit Card Debt for Luxury Purchases.
Credit card debt and the accompanying high minimum payments required each month may have had a major impact on your decision to file bankruptcy. Since credit card debt is considered an unsecured debt, you can include it in your bankruptcy petition and simply watch that obligation disappear forever. In most cases, you can continue to use those cards up until you actually file, but if your purchases in the 60 days prior to filing would be considered frivolous by the bankruptcy court, they may be disallowed. To lessen this risk, use your cards only when necessary for practical reasons. For example, a car repair, food or a needed home appliance, but not a vacation, new designer handbag or country club membership.
2. Get a Cash Advance from Your Credit Card
Taking cash from a credit card is very different from just using the card for a purchase, according to the bankruptcy rules. You may take no more than $925 (in total) in the 90 days prior to your chapter 7 filing. This means either on one card or a combination of cards, and unlike the issue with purchases above, the reason for the cash advance does not matter; you simply cannot exceed that $925.
3. Favoring One Creditor Over Another
One of bankruptcy's prime functions is to satisfy as many of your creditors as possible by liquidating some of your assets and redistributing the proceeds in a fair manner to all creditors. What this means for you is that you are not allowed to pay more than $600 to any one of your creditors in the 90 days before you file, or the bankruptcy court could disallow that payment and "take back" the funds. Even if you cannot imagine paying one your creditors that much money, the same rule applies to paying back personal loans from friends or relatives as well.
As mentioned above, the bankruptcy court may seize your personal property, such as real estate, art, cars, trucks, boats, etc., sell them and use the money to pay your creditors. You cannot avoid this "surrender" of property by disposing of that property prior to filing. Every state sets it's own guidelines for time and penalties, but you could be accused of fraud for hiding assets if you give away or sell property within a certain period of time before filing. Selling items for below market value will definitely raise a red flag and cause further investigation. Hiding assets is a criminal offense.
It's vital to work closely with your bankruptcy attorney in the time leading up to your filing to avoid your bankruptcy case being delayed, denied or worse, being charged with fraud.