If you are considering filing for bankruptcy, here are 7 things NOT to do.
one. Do not return money to friends or family.. If you have borrowed money from family or friends, now is not the time to pay it back. If you make any payments like this within the year before you file your petition, you must disclose those payments in your bankruptcy petition and to the trustee at your meeting of creditors. The bankruptcy court considers these to be preferential insider payments. That means you are using money that could go to your other creditors to pay people you know. It also means that the court can recover those payments from the person you paid. Imagine your mom gets a letter or a call from your trustee saying she owes money to the court.
two. Don’t max out your credit cards. Some people think that if they’re going to file for bankruptcy anyway, they might as well cash in their Christmas gifts or buy that new TV they’ve been waiting for. But, that is a very bad idea. Luxury items over $550 are non-dischargeable if purchased within 90 days of submission date. Also, if you recently maxed out your credit cards before filing, the credit card company is more likely to question your discharge. If they can convince the court that you incurred the charges knowing you were going to file for bankruptcy, that is considered fraud and the charges are not dischargeable. You could also face dismissal of your bankruptcy and other penalties for fraud.
3. Don’t take a cash advance. Just like with your credit cards, cash advances taken just before you apply will not be cancelable and you will still be responsible for paying that debt.
Four. Don’t get a home equity loan. People often take out a home equity loan to consolidate credit card or other unsecured debt. This is a horrible idea because you are now putting your home at risk. Unsecured debt can be discharged in bankruptcy, but if you want to keep your home, you’ll need to continue to pay off the home equity loan.
5. Do not withdraw money from your retirement account. Many people turn to their retirement accounts to try to keep up with their bills and then end up filing for bankruptcy once they run out. Retirement accounts can be protected in the event of bankruptcy, so there is no need to deplete those funds. You will also pay income tax and penalties on the amounts withdrawn. Finally, the distribution of a retirement account can affect your means test. Protect your future by saving your retirement for its intended purpose.
6. Do not transfer ownership. Now is a bad time to transfer assets like cars, boats, real estate, etc. If you don’t receive fair market value for the transfer, it could be considered a fraudulent transfer and the trustee will go after the person who received the property for the asset itself or the cash value of that asset.
7. Don’t ignore your problems. When you’re overwhelmed with debt, it’s easy to procrastinate and try to ignore the problem. But if you do that, you’re more likely to end up with your wages garnished or your bank account garnished. Just as important, most people feel a great relief after the presentation because the financial burdens are no longer on them. Therefore, the sooner you address the problem, the faster you will get relief.