The idea of filing for bankruptcy protection can be daunting, but it is not anywhere near as bad as it seems. We have many clients who wish they had filed sooner. It can relieve you of a tremendous amount of stress by clearing your debts. Here are the top 5 mistakes many people make before filing for bankruptcy.
1. Paying Back Friends, Family, or Asking Someone to Hold Funds
If you give your money to someone else before you file for bankruptcy, this may seem like a fraudulent transfer to the bankruptcy court. You may think your money is safe in someone else’s hand, but that won’t be the case when a court asks to see a bank statement. The bankruptcy court may require those funds to be paid toward the debt you are filing bankruptcy on.
There is a 12-month presumption fraudulent transfer rule for cash payments, and the bankruptcy trustee can undo funds paid to insiders. But, you should keep things as they are and know how to protect items as they sit, rather than getting creative in an attempt to protect something that may make the process more difficult or make it easier to lose what you are attempting to protect.
If you have been sending money to someone else, let Mr. Crawley know, and he will advise you how to proceed. He will discuss the options that best fit your situation.
2. Making Unnecessary Debt Payments
Paying debts in a timely fashion is always a good idea, especially when the interest is high, but it isn’t always necessary when filing for bankruptcy. Once the bankruptcy is filed and official, the debts will be cleared, no matter how much is left.
You don’t need to worry about your credit score because we offer access to a free online course that teaches you how to increase your credit score to 720 on average 12-24 months after your discharge. Within a couple of years, you will be able to make large purchases with a reasonable interest rate.
3. Transferring Assets to Others
Like sending money to another person’s account, giving away your assets can be seen as a fraudulent transaction. Although you might think it can’t be traced back to you once it’s transferred, that is inaccurate. If you move your assets to others before you file for bankruptcy, even if you sell them at low prices or give them away for free, the courts will find out, and you won’t be able to justify that scrutiny.
There is a 3-year fraudulent transfer statute for transferring assets for less than fair value. All transfers in the two years prior, outside of the ordinary course of business, are listed in the petition, and if you didn’t sell something for a reasonable value, those transfers could be undone. It’s best to know how to protect things you own now, before filing, rather than making things more complicated by giving them away and risk losing something important to you.
The best thing to do is keep your assets with you because once you file for bankruptcy, they will be protected. If you sell it or give it away, you might not be able to get it back, and the bankruptcy won’t save it. The best thing you can do is to ask Mr. Crawley about it, and they’ll offer free advice about what to do with your assets.
4. Not Being Truthful About Your Assets
It is essential to be completely honest when you speak with Mr. Crawley. For example, a Chapter 7 bankruptcy includes a “means test,” a requirement that you disclose all of your assets and income. This test allows him to determine your capacity to pay off creditors. If you intentionally leave out assets or income because you are trying to help your qualification, your case will likely be dismissed. There is a chance you could also be banned from filing on those debts ever again. Copies of your financial records are provided to your Trustee. Therefore any lies you tell will come out at your meeting.
Filing for bankruptcy is a legal proceeding, and the schedules and statements presented to the court are made so under the penalty of perjury. No one wants to go to jail or lose a discharge in their bankruptcy case because they intentionally left off an account or an asset that they could have probably protected otherwise. It’s best to own it all and be fully transparent when going over the process with Mr. Crawley. He can make sure you have a plan to protect all that is important to you.
It is best if you don’t try to hide any creditors, either, because credit-card companies have centralized and computerized information. They will all know you have filed for bankruptcy protection, and all debt must be listed. The bottom line is always to tell the truth.
5. Running Up Credit Card Debt
Charging purchases on credit cards you are listing in your bankruptcy is a bad idea. Some think they should use their available credit to catch up on past-due debts. All creditors are notified when you file bankruptcy and can challenge the request to eliminate some or all of what you owe them. It is imperative not to make credit purchases 90-days before filing for bankruptcy. To be safe, once you choose to file bankruptcy, you should stop using credit cards altogether.
It is against the rules to incur debts in contemplation of discharging them in bankruptcy. There is a 90-day presumption period where the court presumes that you knew you would likely file for bankruptcy protection. If you have significant purchases in that window of time, those could be held non-dischargeable, or worse, be a showing of bad faith that could disqualify you from the discharge you are seeking. If you need a new (reasonable) vehicle payment before filing, get that done as long as you can afford the payments. If you have any questions, please be sure to call (870.972.1150) and set up a time to speak with Mr. Crawley about your options.