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Home > Blog > Bankruptcy and Debt Relief > Here Are 5 Things You Should Never Do Before Filing for Bankruptcy

Here Are 5 Things You Should Never Do Before Filing for Bankruptcy

Filing for bankruptcy isn’t something to be taken lightly. It’s a last resort decision that will stick with you for years to come. So, if you decide to file, it’s important that you understand how to properly begin the process. This includes avoiding certain mistakes that will hold you back.

Don’t Make These 5 Mistakes

Bankruptcy is a tool that allows people who are in over their heads to earn a second chance, but it’s not something that you should decide to do without careful thinking and preparation.

Every bankruptcy case has a good faith filing requirement. If the circumstances surrounding your bankruptcy case are deemed to be an abuse of the system, then your filing will be said to be in bad faith. For example, you can’t file for bankruptcy in an attempt to delay creditors from taking action against you.

“Filing a bankruptcy in bad faith can get you in trouble,” explains. “The consequences of a bad faith filing can vary depending on how egregious your conduct was and whether you own any nonexempt assets. But they can include dismissal of your bankruptcy, forever losing the right to discharge debts existing at the time of your filing, and loss of your nonexempt assets.”

In order for you to avoid any possible sign of filing for bankruptcy in bad faith, it’s imperative that you avoid making the following mistakes:

  • Continuing to Use Credit Cards

Continuing to use credit cards as you prepare to file for bankruptcy is not only dishonest, but the courts view it as a sign of bad faith. You’re essentially using someone else’s money and saying that you’ll pay it back, even though you know that the debt will be absolved in your upcoming bankruptcy.

There are very few exceptions in which it’s okay to use credit cards. If it’s your only option for getting basic life necessities, then small amounts aren’t going to get your case thrown out. But now is as good a time as any to practice using cash.

  • Robbing Peter to Pay Paul

There’s a concept in bankruptcy law that’s known as robbing Peter to pay Paul. In this scenario, the bankrupt individual takes out additional credit with one of their banks and uses that money to pay down debt with another creditor that they feel like has been nicer to them. Or the idea may be that they can keep the particular “asset” they’re paying off after bankruptcy.

Here’s the deal. Using credit like this can be classified as fraud. If you know that you’re taking on more debt that you can’t afford, then you’re stealing from your creditors and tainting your bankruptcy case.

  • Cashing Out Retirement

Your retirement account – whether it’s a 401(k) or an IRA – is sacred. It’s a tax-advantaged account that (hopefully) will provide enough for you to live comfortably after retirement. Unfortunately, it’s fairly common for individuals to borrow or withdraw money from retirement accounts in order to satisfy debts or cash flow monthly expenses. What they don’t realize is that bankruptcy provides exemptions for retirement funds. If you want to keep creditors’ hands off your retirement money, leave it alone.

  • Taking Cash Advances to Repay Friends

You may think that you’re doing a favor to friends or family members by taking a cash advance to repay them for some debt you owe, but you’re actually setting them up for failure.

The bankruptcy trustee in your case is allowed to go to anyone who you’ve paid a considerable amount of money within the past year – whether a parent, child, or friend – and ask for that money back. This money then goes into a pot that’s divided up amongst all creditors. If they can’t provide it, their wages can legally be garnished.

  • Transferring Money and Property

A lot of people think they’re being sneaky and will attempt to transfer money or property into someone else’s name just before filing for bankruptcy. For example, they’ll change the title on their car to a friend’s name in order to make it exempt from the bankruptcy.

Here’s the thing: the bankruptcy court isn’t stupid. They know exactly what you’re doing and will expose you for trying to conceal assets. Play by the rules and you won’t have any of these problems.

A Few Things You Should Do

In addition to avoiding the previous mistakes, there are a number of things you should do as you prepare to file for bankruptcy. Here are three suggestions:

  • Educate Yourself

Bankruptcy can be a confusing topic to understand. Each type of bankruptcy has different rules and requirements. The more you educate yourself on the basics, the better prepared you’ll be for the process.

  • Set a Budget

Don’t wait until after you file for bankruptcy to start getting your financial life in order. If you continue with the same bad habits, you’ll end up in the same place again in the future. Now’s as good a time as any to set a budget and start practicing smart financial behaviors.

  • Hire a Bankruptcy Attorney

Finally, you absolutely must hire a good bankruptcy attorney. While you may be tempted to try and handle this problem on your own, a good attorney will fight for you and make sure your rights are respected throughout the process. This will make things easier on you, both now and in the future.

Contact Rowdy Williams Today

With almost two decades of experience inside the courtroom, the Rowdy G. Williams Law Firm P.C. knows what it takes to help clients tackle the challenges life throws at them – including bankruptcy.

If you’re looking for a Terre Haute attorney who understands the bankruptcy system and has a proven track record of helping clients, we can help. We’re more than qualified to walk you through issues like creditor harassment, debt relief, collections, foreclosure, wage garnishment rebuilding credit, and all of the other topics that come with bankruptcy.

Contact us today to schedule a free initial consultation!

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