Filing for bankruptcy may turn out good or bad for you, depending on how you are able to handle it. It is crucial that you engage a bankruptcy attorney to guide you. Here are a few things you should avoid when filing for bankruptcy to avoid fines and imprisonment.
Frivolous Spending
The court examines your previous spending patterns when you file for bankruptcy. The court knows you are pressed for cash and will want to run near your credit card limit before filing for bankruptcy. Remember, filing for bankruptcy involves answering questions under oath. You will have to explain why you made large purchases before filing.
Spending money frivolously after filing for bankruptcy may appear like fraud. The courts will consider spending huge sums of money within 90 days of filing as a sign of bad faith. It shows that you never intended to pay off your credit card debt. This could result in severe legal penalties.
Giving Assets to Family Members
Many people assign their assets to friends or family members to avoid losing them when they file for bankruptcy. This is a red flag and shows you are being dishonest. In fact, you may end up losing these assets if the court finds out. Inquire from your Chapter 7 bankruptcy lawyer about other ways to avoid losing your assets.
You are required to list all your assets and liabilities. Some people try to hide their assets or give them away to pass the means test, which is a requirement under Chapter 7 bankruptcy law. If you are caught, your case will be dismissed, and you may face criminal charges.
Favoring Creditors
You may be tempted to pay certain creditors in full and leave out others before you file for bankruptcy. These are known as preferential transfers. It could lead to a clawback lawsuit. Some people make the mistake of raiding their 401(k) accounts to pay off some creditors. These accounts are exempt when filing chapter 7 bankruptcies. This means a bankruptcy trustee or creditors cannot seize them. Therefore, it makes no sense to raid them.
Usually, if a dollar amount exceeds a certain limit, the bankruptcy trustee is allowed to take the money back from the one you paid it to. In a clawback lawsuit, the bankruptcy court trustee sues the person or entity you paid to get the money back.
In Conclusion
Filing for Chapter 7 bankruptcy is a great way to be relieved of unsecured debts like credit cards and personal loans. However, making certain purchases or transfers can lead to a dismissal of your case. Before you file for bankruptcy, consult a bankruptcy lawyer to determine what is required and how to succeed in your case.
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