Filing for Bankruptcy: What NOT to Do

Filing for bankruptcy involves more than just an avalanche of paperwork. Your actions (or lack thereof) prior to bankruptcy can have a major impact on its success. Certain financial transactions, for example, can have serious and irreversible consequences for your bankruptcy filing.

Below are mistakes you need to avoid at all cost.

Supply incorrect, incomplete, or fraudulent information: When you fill out the bankruptcy paperwork, you are obligated under penalty of perjury to disclose all information about your debts, assets, financial history, income, and expenses. Knowingly misrepresenting your situation (for example, failing to disclose an asset) could subject you to criminal prosecution.

When you fill out the paperwork, leave nothing blank unless the question does not apply to you. If you omit a creditor by accident, that debt might not be discharged. If you leave out an asset (even unintentionally) and it is discovered later, it could be seized by your Chapter 7 trustee. Forgetting to file certain schedules or forms with the rest of the paperwork could lead to your case being dismissed or the bankruptcy court denying you a discharge – one reason it is so important to have an experienced attorney on your team.

Fail to file income tax returns: If you have not filed your income tax returns for the two years prior to filing for bankruptcy, it will be nearly impossible to complete your paperwork and your bankruptcy will come to a halt. Tax returns are needed to determine current and past earnings as well as asset holdings. Your tax obligations cannot be determined until an assessment has been made, and the IRS can’t make an assessment without the returns.

Create new debt: If you acquired additional debt in the 70 to 90 days prior to filing bankruptcy, the creditor in question may object to your discharge, arguing that you created the debt without any intention of repaying it. You also need to refrain from taking loans against or cashing out your 401(k), pension, or other retirement payment plan, or taking out an equity line of credit against your house. All of these scenarios may cause problems with your bankruptcy.

Move assets: Resist the temptation to sell, hide, or transfer any of your assets before filing bankruptcy. To do so could result in a discharge refusal and/or criminal penalties.

If you sold property in an attempt to pay off your debts, it’s not necessarily wrong or criminal; however, your trustee will ask you if you sold, transferred, or gave away assets before filing bankruptcy, and if you reply in the affirmative, they will want to know what you did with the money. If you paid off a creditor before filing, the trustee may try to reclaim that money as a preferential transfer.

Repay loans selectively: If you repay relatives or friends within one year of filing or some of your creditors within 90 days, your action may be regarded as a preferential transfer. The bankruptcy trustee may sue to get the money back, and then disburse the money equally among your creditors.

If you have questions about any of these points – or if you’d like assistance with bankruptcy in general – please contact us today to learn more! You can reach our office at (305) 227-4030.