Do Not Do These Things Before Filing Bankruptcy

Do Not Do These Things Before Filing Bankruptcy

For many people, the idea of a “clean slate” is an attractive proposition when it comes to finances and credit. Bankruptcy gives people who find themselves overwhelmed with debt an opportunity to find something of a fresh start regarding their finances. Not only does bankruptcy halt your creditors’ ability to collect on debts, but it can also help wipe out certain debts entirely.

However, peoelple should be careful to approach bankruptcy proceedings by the book, or else endanger their chances of getting a clean financial state. Sometimes what appears to be a clever idea might land you in hot water with the bankruptcy court. That’s why you should leave the cleverness to a professional bankruptcy attorney. This article discusses certain things people should avoid before filing for bankruptcy.

Don’t Neglect to File Tax Returns

Unless you are excepted from filing tax returns, failing to do so for the two years before your bankruptcy can be problematic. Your tax returns are essential for showing the bankruptcy court the state of your assets and liabilities. Without your recent tax returns, the bankruptcy process can come to a screeching halt as you figure out other ways to determine your assets. Furthermore, certain debts may only be discharged if you are current on filing your tax returns.   

Don’t Incur New Debt

Knowing that bankruptcy can discharge certain debts, some people might think of it as an opportunity to assume more debt. However, under bankruptcy rules, luxury items purchased using a credit card or through cash advances on a line of credit are presumptively fraudulent. The creditor has a good argument you had no intention to repay your creditor since you probably planned to file bankruptcy when you made those purchases.

Don’t Hide Assets

Bankruptcy proceedings required detailed accounts of all of your assets and property. For example, under a Chapter 7 liquidation, the bankruptcy trustee can sell valuable assets to satisfy outstanding obligations to your creditors. However, selling or hiding your assets in anticipation of bankruptcy can have negative consequences. If it appears that you sold assets to protect them from the consequences of bankruptcy, bankruptcy courts have the authority to undo those transactions. Such transactions should serve a legitimate purpose unrelated to preserving your assets, such as to pay off loans and creditors.

Don’t Give Certain Creditors Preferrential Treatment

As you know, a Chapter 7 bankruptcy has the potential to wipe out your debt to creditors even if they were not repaid the full amount of the debt you owed. However, if you paid any of your creditors soon before you filed for bankruptcy, the trustee in bankruptcy could file a complaint that you made a “preferential transfer.” A preferential transfer occurs when you pay a creditor more than they would have received in bankruptcy. Payments to creditors who are considered “insiders” such as a friends, relatives, or business associates are also considered to be preferential transfers. The bankruptcy trustee has the authority to unwind such transfers and impose penalties on you.

Consult The Virga Law Firm, P.A. for Bankruptcy Advice

It is important for you to conduct your financial fairs in a way that does not hurt your bankruptcy proceedings. To ensure you remain compliant with bankruptcy rule, you should consult an experienced bankruptcy attorney for legal advice. At The Virga Law Firm, P.A., we have years of invaluable experience with bankruptcy proceedings to make sure your chances at getting the relief you need is properly preserved.

For quality legal advice from a skilled bankruptcy attorney, call The Virga Law Firm, P.A. at (800) 822-5170 or contact us online today.