The decision to file bankruptcy is never one to be made lightly. Whether you’re in debt from exorbitant medical bills, loss of income, or from a recent divorce, your only option to relieve yourself of the debt associated with these unfortunate events may be to file a personal bankruptcy. There are, however, certain actions you should refrain from doing, so as to make the process of filing for bankruptcy as smooth as it can be and, most importantly, result in less scrutiny by your trustee. Let’s take a look at these actions:
- Preferential transfer – This refers to paying one creditor over others in an attempt to clear up some debt before you file. The bankruptcy trustee can perform what is called a claw back lawsuit, in which the trustee files a lawsuit against against the “preferred” creditor in an attempt to get back the money you paid. This just delays your filing and the discharge. Any monies recovered in a preference inures to the benefit of your creditors, not the debtor. Preferential payments can become an issue when insiders (read ‘family members’) are repaid loans or other advances within the one (1) year prior to your bankruptcy filing. Such payments need to be analyzed carefully before a bankruptcy filing.
- Continuing to use credit cards – A good first step when filing for bankruptcy is to stop using your credit cards entirely, which means refraining completely from shopping for luxuries, clothes, electronics, etc. You can, however, continue to use your debit card that’s connected to your bank account. Charges incurred on a credit card after the date of your filing would not be subject to your discharge.
- Transferring assets for little or no consideration – While some who are in the process of filing for bankruptcy may think that transferring assets, such as a car or house, to friends or relatives for safe keeping, will protect the asset(s) from bankruptcy proceedings, this may not be the case. Today, most debtor’s assets are exempt and will be retained after your discharge. Transferring assets for little or no consideration prior to a bankruptcy filing can only lead to increased scrutiny and potential problems.
- Taking future payments – It is important to note that all payments you hope to receive in the future, as well as any money or assets you currently have, comprise your bankruptcy estate. Future payments can include tax refunds and even inheritances (only if received within 6 months after your filing date). Again, it is important to analyze such situations in light of your available exemptions. You and your lawyer need to determine if your assets are exempt prior to filing.
- Filing lawsuits – When you file for bankruptcy, in concept, your assets are transferred to the trustee who has been appointed in your bankruptcy case. This includes any lawsuits, whether they have already been filed or exist merely as a cause of action. In such cases, the trustee who has been appointed in your case may have an interest. The lawyer handling your case outside the bankruptcy will need to be appointed by the Bankruptcy Court to represent you and to get paid. Any settlement needs to be noticed to all creditors and approved by the Bankruptcy Court prior to becoming official. As to the settlement proceeds, you may or may not be able to exempt all or part of them depending upon your jurisdiction.
- Depositing money into accounts – Income should be the only deposit you make into your bank accounts. Don’t deposit money or checks from a friend who means well and is just trying to help you out. These payments will need to be explained. In addition, if you happen to own your own business, be sure to keep business accounts separate from your personal accounts to avoid confusion during the filing process.
Bankruptcy may be your only option to wipe out debt, so don’t squander this chance by recklessly performing one or more of these actions. Contact the Law Office of Barry R. Levine by phone at 978-922-8440, or by email at [email protected], to discuss whether bankruptcy is right for your financial situation.