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Mistakes to Avoid Before You File for Bankruptcy

mistakes

Bankruptcy judges are not very kind to those who attempt to defraud the bankruptcy process. Even innocent-seeming transactions can cause a bankruptcy judge or the trustee to look askance at your filing. To avoid even the appearance that you are trying to pull one over on them, you should avoid making any of the following mistakes.

Not Being Honest With Your Attorney

We’re not criminal defense attorneys. You can be honest with us! And, in fact, it’s absolutely essential that you are. There is no sense in trying to conceal an income source or otherwise attempting to hide assets from the bankruptcy court. The bankruptcy court, the bankruptcy trustee, and especially your creditors will be watching closely and going over your filing with a fine-tooth comb. If they even suspect that you are hiding income or attempting to conceal assets, you can be charged with bankruptcy fraud and perjury. Then you will need a criminal defense attorney!

Transferring Assets Prior to Filing for Bankruptcy

The bankruptcy trustee and your creditors will pore over any recent transactions. Their look- back period is as long as a year. If you attempt to hide assets or protect them from liquidation by transferring them to your cousin, it won’t take an ingenious bankruptcy trustee to figure out what happened.

There are two things that you need to know before you start giving your valuable assets away. First, the bankruptcy trustee can void the transfer. In other words, they can declare that the transfer was illegal. If you have recently sold assets to pay off debts, the trustee will make sure that you received fair-market value for the item. If you sell your Corvette for a dollar, they’re going to know something’s up. Secondly, a bankruptcy judge can declare that you have attempted to defraud the bankruptcy court. You could face criminal charges and the chances of your bankruptcy discharge coming through will diminish considerably.

Paying Friends or Family Back Before You File Bankruptcy

If you pay more than $600 to a friend or a member of your family, the bankruptcy trustee or the individual administering your bankruptcy can reverse the transfer and then use the proceeds to repay your creditors. When a client comes into my office and tells me they’ve repaid a family member or a friend, we have two options. Either risk the transaction being voided by the trustee or wait a full year from the date of the transfer to file for bankruptcy. The trustee won’t look beyond one year for insider transfers.

Failing to List All Your Creditors

You are required (under penalty of perjury) to list all your creditors regardless of whether or not you intend to discharge the debt in bankruptcy. This includes your friends and your family members. That doesn’t mean that every debt you list is subject to a bankruptcy discharge. Nor does it mean that you couldn’t repay the debt to your family member or friend after you file for bankruptcy. It simply means that you have to list them.

Raiding Your Retirement Funds to Repay Your Debts

IRAs, 401Ks, and every other retirement account are protected from creditors. That means that they can’t touch the funds in your IRA or 401k to repay the debts. Retirement accounts are not subject to liquidation in bankruptcy. They are not considered a part of “your” estate or assets.

If you find yourself in a position where you’re raiding your retirement accounts to pay off your creditors, you should pause and consider bankruptcy instead. It is likely that the retirement funds you’re using will only forestall the inevitable. And by the time you do file for bankruptcy, you’ve already lost one of your most precious security nets.

Not Discussing Your Situation With a Bankruptcy Attorney

Part of the reason why folks start raiding their retirement accounts prior to filing for bankruptcy is that they don’t fully understand their legal rights as a debtor. They know they’re potentially facing lawsuits and if they don’t pay their debts, the creditor might garnish their wages. By the time an individual creditor is threatening a lawsuit, you should be thinking about bankruptcy as an option. That doesn’t necessarily mean it’s the right option. It’s just one more tool in your shed.

Most bankruptcy attorneys are happy to sit down with you and discuss your options before you commit to the bankruptcy process. This means that you won’t have to pay for basic recommendations. Before you start raiding your retirement accounts or doing anything crazy, talk to a skilled Eugene bankruptcy attorney instead.

Running Up Your Credit Prior to Filing Bankruptcy

There are several protections in place to ensure that the bankruptcy system is not abused. Those who think they’re clever and run up a significant amount of credit card debt that they think they can discharge in bankruptcy will have a rude awakening. Creditors can raise objections to a discharge and if the trustee or the court has reason to believe you ran up your credit so you could discharge it in bankruptcy, they won’t discharge the debt. You’ll be stuck with it.

Waiting Too Long Before Filing

The best time to file for bankruptcy is right before you know you’re going to lose a judgment to a creditor. The creditor files a lawsuit against you seeking to recover the debt. Once they have a judgment, they become a judgment-creditor and you a judgment-debtor. Judgment-creditors can take aggressive actions to recover a debt. These include garnishing your wages, levying your bank account, and placing liens on your real estate, including your home. Once the lien is on your property, it cannot be discharged in bankruptcy. Nor can you recover funds levied from your bank account or garnished from your wages.

Talk to a Eugene, OR Bankruptcy Attorney Today

If you’re struggling with the decision to file for bankruptcy, it doesn’t hurt to talk to an attorney beforehand to weigh out the pros and cons. Tom provides free in-office consultations at Butcher Law Office, LLC so you don’t have to commit to anything. Talk to us today. We can
help.