Everyone talks about what you should do before you file bankruptcy. They discuss how you should decide if it’s the right answer for your situation. They catalog the benefits and the consequences. They provide details about bankruptcy filing requirements and offer suggestions on how to recover after receiving a bankruptcy discharge. But no one ever talks about what not to do before filing Chapter 7 bankruptcy.
5 Things to Avoid Before Filing Chapter 7 Bankruptcy:
- Avoid unnecessary purchases on credit. Avoiding purchases of luxury items (especially on credit) is essential before filing bankruptcy. Due to the “presumption of fraud” doctrine, “luxury” credit purchases costing more than $675 made within 90 days of filing bankruptcy are presumed fraudulent and not dischargeable in Chapter 7 bankruptcy. The doctrine is based on the presumption that petitioners who make luxury credit purchases right before they file bankruptcy do so with no intention of repaying the debt, so they should pay it rather than discharge it through bankruptcy.
- Avoid considerable cash advances. Large cash advances (over $950) within 70 days of filing bankruptcy are treated similarly to the luxury purchases discussed above. The new debt is typically not dischargeable. The $950 is cumulative over the 70 days before filing.
- Don’t forget to file income tax returns. Income tax returns are an essential element of the court’s process to determine a petitioner’s earnings and assets. For example, if tax returns haven’t been filed for the two years preceding a Chapter 13 bankruptcy filing, the case will likely be dismissed.
- Don’t pick and choose loans to repay. Before filing bankruptcy, you may be tempted to pay back certain “loans.” You may feel compelled to pay your brother back that $8,000 you borrowed from him two years ago. Choosing one loan to pay back like this is a significant problem for the bankruptcy court. It seems like a nice thing to do, but the court is likely to consider it a “preferential transfer.” Bankruptcy code protects creditors from this type of action. The bankruptcy court may sue the party in receipt of the funds to split the money between all the creditors.
- Don’t hide assets or transfer assets. If you’re filing bankruptcy, resist any urges to move, hide, sell or otherwise transfer any assets to keep them safe or dispose of them before you file. Doing so could result in a dismissal and may even lead to criminal charges.
If you need to file bankruptcy and are nervous about avoiding common bankruptcy mistakes, please don’t hesitate to get in touch. Most bankruptcy offices in the Chattanooga area don’t have a single Consumer Bankruptcy Specialist on staff. Our office is the only one with two. You are in good hands with Kenneth C. Rannick P.C.