Individuals intending to file for bankruptcy should steer clear of these five types of financial transactions:
Avoid transferring money or property.
Everyone wants to protect what they have, but money or property transfers made before filing for bankruptcy can get you into big trouble. This includes transferring money into another person’s account, removing your name from jointly held accounts or business ventures, putting a vehicle’s title into a spouse or child’s name, and transferring the deed of real property. Transactions like these could place you in hot water, even lead to charges of fraud. An attorney can help you explore legal avenues you have for protecting your assets.
Avoid preferential payments to creditors.
Except for mortgage, car-secured payments, home lease agreements and other debt secured by your essential property, it’s generally advisable to stop making your payments on other debts if you have already commenced the steps to file for bankruptcy protection. It stands to reason that not every creditor will be repaid in full, so showing favoritism by paying back one debt (like a loan from a family member or your favorite credit card) is considered an unfair preferential payment and may be subject to litigation by the Chapter 7 Trustee or a bad-faith allegation affecting plan confirmation in a Chapter 13 proceeding. The trustee can use a clawback provision and lawsuit to recover the funds paid preferentially in Chapter 7; your favorite creditor won’t be thanking you when they are getting sued. In Chapter 13, you run the risk of not getting your plan confirmed and the case being ultimately dismissed.
Avoid most credit card purchases.
Living expenses like food, housing, or transportation are generally not seen as bad-faith expenditures, but credit card use should otherwise be discontinued if you will be petitioning for bankruptcy protection. Non-essential purchases like jewelry, travel, tickets, or dining out are considered luxury purchases; luxury purchases within 90 days of filing may be subjected to a non-dischargeability adversary proceeding, affecting your right to discharge these debts.
Avoid agreeing to future payments.
Funds not yet in your possession, but that you have already gained the right to receive in the future are considered part of the bankruptcy estate. These include tax refunds, unpaid wages, future work bonuses, and inheritances with expected future payouts. Of course, you wouldn’t turn down future inheritance money, but it is important to note these funds will not bypass the bankruptcy process. Failure to disclose or document your present right to future payments could derail your case.
If you have already made one of the above listed transactions, your best course of action may be to wait before filing. The trustee appointed by the court will examine any transactions within a predefined “look-back” period. With the analysis and guidance of an experienced bankruptcy attorney, delaying your bankruptcy filing until after these deadlines have passed will keep you out of legal trouble and ensure your case remains in good standing.
These are some, but not all of the pitfalls that are important to avoid in the months leading up to a bankruptcy filing. The best way to avoid traps, penalties, or additional legal problems is to consult with an experienced attorney that specializes in bankruptcy cases. Our team can help; we are ready to put our expertise in bankruptcy law to work for you. Contact the Law Offices of Jeffrey Lohman today.
The Law Offices of Jeffrey Lohman, P.C. is considered a debt relief agency pursuant to federal law. We are attorneys who help people file for bankruptcy relief under the Bankruptcy Code.