What Not to Do Before Filing For Bankruptcy
Nov. 15, 2023
For those who struggle with rising or otherwise unmanageable debt, filing for bankruptcy may be the best route to get a fresh start. However, people often do not understand how to go through the bankruptcy process to avoid having any issues in their case.
Our bankruptcy attorneys at Kinnaird Law Firm guide our clients through all stages of the bankruptcy process, including what to do and not do before filing for bankruptcy. From our office in Colorado, Springs, Colorado, we provide skilled and comprehensive representation to clients throughout Douglas County, El Paso County, and the surrounding areas. When you’re in need of skilled bankruptcy guidance, reach out to us for support.
What NOT to Do Before Filing for Bankruptcy
While filing for bankruptcy may seem like a straightforward process, it involves many important considerations. Particularly, there are a number of things you should avoid doing before filing for bankruptcy or you risk compromising your entire case. Some of the things to not do include:
Using your retirement accounts to pay off debts. People who accumulate significant retirement account balances over their working life may consider withdrawing their retirement funds to pay off some of the debts. However, doing so may not be a rational move from a financial perspective considering that (a) this may trigger an early withdrawal penalty and income tax and (b) your retirement accounts are generally protected by bankruptcy exemptions, which means you do not have to worry about losing your retirement assets when filing for bankruptcy.
Acquiring new debt. Unless you need the money for necessities such as food, shelter, clothing, or utilities, acquiring new debt 70 to 90 days before filing for bankruptcy can lead to unintended consequences as your creditor is likely to object to a discharge of such debt. In the worst-case scenario, you may be accused of committing “presumptive fraud” because your actions may be interpreted as an attempt to take advantage of the bankruptcy system.
Transferring or hiding assets. Any attempts to hide assets or transfer them to third parties, including your family members or friends, before filing for bankruptcy may be seen as fraud in the eyes of the law. In fact, these assets will most likely not get any protection as the trustee will be able to recover them. If you are thinking of moving your assets in anticipation of bankruptcy, speak with an attorney to discuss your options.
Not filing taxes. Filing for bankruptcy with unfiled taxes could cost you both money and property, not to mention that not filing taxes could lead to a dismissal of your case. Tax returns are used by bankruptcy courts to review the filer’s current and past earnings to determine their ability to pay back the debts. However, if you are not employed or are otherwise not required to file taxes, you do not need to worry about tax returns before filing for bankruptcy.
Misrepresenting your information. Under the law, you have a legal obligation to provide accurate and complete information when filing for bankruptcy. Any attempts to provide inaccurate or incomplete information about your assets or debts could result in a dismissal of your case and accusations of fraud.
Selectively paying off debts. While paying off your creditors may seem like the “right thing” to do before filing for bankruptcy, it can actually do more harm than good, especially if you prioritize certain creditors while others do not receive anything. Generally, bankruptcy law prohibits the repayment of certain creditors within 90 days of filing for bankruptcy. When you file for bankruptcy, your transactions will be examined and those that have occurred within the 90-day period may be classified as a “preferential transfer.” If you selectively pay off your creditors before bankruptcy, your trustee may recover the payment and use the money to pay off creditors equally.
Repaying your family members, friends, or business associates. Under bankruptcy law, family members, friends, and business associates are classified as “insiders.” When a debtor repays an insider within 12 months of filing for bankruptcy, the payment can be reversed by the trustee. In this situation, you can either repay the trustee or the trustee will sue the “insider” to recoup the payments.
Filing without an attorney’s guidance. Even if filing for bankruptcy seems like the right thing, you might want to consider speaking with an attorney first. An attorney will review your financial situation and provide you with the guidance you need to get through this difficult time. In some cases, there may be alternative solutions to alleviate the burden of debt. An attorney can advise you on your options and discuss the type of chapter that fits your situation the best.
This is a non-exhaustive list of things to avoid before filing for bankruptcy. For further guidance, contact our knowledgeable attorneys who can help you successfully handle your case and get your financial situation in order.
Get the Support of a Skilled Attorney
If you are considering filing for bankruptcy to give yourself a fresh financial start, our attorneys at Kinnaird Law Firm can provide you with the guidance you need during this challenging time. We can explain what you should and should not do before filing for bankruptcy to avoid legal issues down the road. Contact our office today to request a consultation.