BIG MISTAKES BEFORE FILING BANKRUPTCY
BIG MISTAKE NUMBER ONE
You cannot pay back friends or family large sums of money before you file bankruptcy. This is called a "preference", because you are preferring to pay them back over your other creditors. The Bankruptcy Trustee assigned to your case can sue your friend or relative to get back the money. It is then equally distributed to the creditors.
We see this most often with tax returns. You get a big tax return, and the first thing you do is pay back mom or dad the money that you owe them. Trustees know this, and they will question you closely about how you spent that return. You will be under oath at the time and there are serious consequences for perjury. Your attorney can lose his or her license, too, if they know about a preference and don't disclose it.
BIG MISTAKE NUMBER TWO
If you're thinking about filing bankruptcy, it is tempting to use those credit cards for just one last splurge. Don't do it. A big issue in bankruptcy law is something called "good faith". Incurring debt when you know you can't pay it back gives your creditor an opening to object to your bankruptcy. Credit card companies review the transactions of clients who file. Recent use, especially for luxuries, can raise a big red flag.
BIG MISTAKE NUMBER THREE
You can't just transfer big-ticket items out of your name to avoid losing them in bankruptcy. Trustees often do public record searches looking for exactly these kinds of transfers. Your Bankruptcy Trustee can "set aside”, or void the transfer. The property then becomes part of your bankruptcy estate and available to creditors. And the worst part of it? There are certain exemptions that might have been available if you had just kept the items in your name.
This informational is for general information only, and is in no way intended to create an attorney-client relationship. Depending on where you live, here are large difference in bankruptcy laws and how they are applied. Please contact an attorney knowledgeable in the bankruptcy laws in your state.