Living under a heavy burden of debt is difficult. Many people feel stuck in their financial circumstances, and are unsure of how to dig themselves out of a dire situation. This sentiment is especially common around the holidays. For many in these straits, filing for bankruptcy and getting a "fresh start" may be the best possible course of action. Once the decision is made to seek bankruptcy protection, a huge sense of relief often follows. However, in order to insure your bankruptcy yields the desired results-the elimination of your debts--it is prudent to avoid certain actions before you file. The following tips are offered to assist individuals and families as they prepare to file for bankruptcy.
Be careful about repaying debts
Once you have decided to move forward with a bankruptcy case, be very careful about making other than your usual payments on any outstanding debt-especially if you pay some debts but not others. People often prioritize the repayment of money they have borrowed from friends and family over other debts. However, doing that will very likely lead to problems during your bankruptcy case. The law is there to help you, but only if you treat all creditors equally.
If you make substantial payments to friends, family members, or any single creditor within a year prior to filing for bankruptcy, especially while not paying other debts, such payments may be regarded as a "preferential transfers" by the Court. The Bankruptcy Trustee has the authority to "reclaim" those payments and distribute the funds equally among all of your creditors. Think about the awkward situation that would create. Any goodwill you thought was earned by repaying a family loan is likely to be lost if the Trustee sues your family member to reclaim those funds.
Avoid taking on new debt
As it is the holiday season, it is tempting for some with financial difficulties to finance their gifts and other holiday purchases by using their credit cards and then proceeding to file bankruptcy shortly thereafter. However, doing so can compromise your ability to obtain a discharge (i.e., elimination) of any such debt. The Bankruptcy Court and the Trustee assigned to your case will make a thorough review of your financial information at the outset of the bankruptcy process. This includes carefully examining all purchases made during the three month period prior to your filing. Hence, you should avoid taking on significant new debt during that time. Such recent purchases or loans give the creditors the right to object to the discharge of those debts as having been incurred on the "eve of bankruptcy", with no realistic intention or means of repayment. In such cases, the Court may force you to re-pay such debts, despite your bankruptcy filing, leaving you fully responsible for same.
Don't move or sell assets
Keep in mind the role that the Trustee plays in your bankruptcy case. He or she will be tasked with reviewing all of your financial matters to ensure that your circumstances are in line with bankruptcy rules and regulations and that all creditors are treated similarly. If it appears that you have transferred assets or disposed of items of value, you will be asked to account for and justify those activities. Bankruptcy courts are very familiar with most transfers designed to hide assets or treat some creditors more favorably than others. There are strict rules in place to ensure that individuals do not engage in transfers designed to conceal assets or favor creditors during the bankruptcy process. If the court finds that you attempted to engage in any such conduct prior to filing bankruptcy, you may be denied a discharge and even be subject to criminal penalties, under certain circumstances.
Although it is technically legal for you to sell certain assets to raise money to debts, doing so may be inadvisable or even lead to legal trouble if you are considering bankruptcy. Remember, the main task of the Court and Trustee is to insure that you are protected, while also protecting the rights of the creditors.
When it comes to navigating through personal bankruptcy, the best course of action is to work with a trusted bankruptcy attorney who can provide customized advice that is tailored to your specific circumstances. Doing so when first contemplating bankruptcy will not only help avoid a negative outcome in court, but also provide peace of mind, which is invaluable during times of financial turmoil.