Making the decision to file bankruptcy can be tough, and a great deal of preparation goes into a bankruptcy filing beyond filling out all of the paperwork. Actions you take or don't take, prior to filing for bankruptcy can have an effect on the success of your bankruptcy. Decisions you make before bankruptcy can have a negative impact on your bankruptcy filing. Here are five things you shouldn't do prior to filing for bankruptcy:
1. Racking Up New Debt
It can be tempting to continue using your credit cards, especially if you're already having trouble paying your bills. However, before you file for bankruptcy, your bankruptcy attorney should question your credit card usage. After filing, the bankruptcy trustee will certainly evaluate your credit card situation to determine if you've been making charges without the intent to pay them back. Likewise, the creditors will also be looking for individuals who went on a spending spree prior to filing for bankruptcy.
If you rack up a significant amount of debt in the ninety (90) days prior to filing for bankruptcy, your creditors may try to object to your bankruptcy. They may try to argue that you used the money without the intention of paying it back and that you shouldn't be allowed to discharge that debt.
Some of the activities that bankruptcy trustees and creditors look for include:
- Buying luxury items that cost more than $600 within 90 days of filing
- Taking out more than $875 in cash advances within 70 days of filing
- Making purchases within 70 to 90 days of filing
2. Not Filing Taxes
Failure to file your taxes before filing for bankruptcy can lead to a dismissal of your claim. The bankruptcy courts use your tax returns to help determine your current and past earnings and whether you are able to pay back your debts. If you don't have these documents, you won't be able to file for bankruptcy.
3. Moving Assets
It's tempting to want to get rid of your assets prior to filing for bankruptcy so you don't have to list it in your bankruptcy paperwork, but doing this can have negative consequences. Do not be tempted to sell, transfer for safekeeping or hide your assets prior to filing for bankruptcy. This is foolish. If you do engage in this behavior, you may be denied a discharge or be subject to criminal penalties. The bankruptcy courts will look to see if you've sold the property, transferred assets into someone else's name or if you're hiding any assets. Please don't put yourself into this position. It is not worth it.
4. Selectively Repaying Loans
When you file for bankruptcy, you may have the ability to pay back some of your debts. If you tried to pay back debts on your own prior to filing for bankruptcy, you'll need to disclose this information in your bankruptcy paperwork and during your meeting of creditors. For example, if you paid back a loan from your parents prior to filing for bankruptcy, you'll need to list this in your paperwork. Your bankruptcy trustee may try to get this money back because these types of payments are often seen as preferential debt payments. Making these payments isn't illegal, but it can have negative consequences if you try to hide this information during your bankruptcy.
5. Ignoring Pending Actions
No one enjoys being constantly contacted by creditors or collections agencies, especially when you don't have the ability to pay them back. However, you shouldn't just ignore the actions your creditors are trying to take. Let your creditors know that you're planning on filing for bankruptcy, and ask them to contact your attorney if they have any further questions or concerns.
If there's a chance that you're going to file for bankruptcy, avoid making these mistakes. If you've already made one or more of these mistakes, consult with an experienced bankruptcy attorney to discuss what your next steps should be.