Ten Rules to Follow Before Bankruptcy.

by | Jan 7, 2022 | Chapter 7 Bankruptcy

The bankruptcy code is a fickle beast encompassed with rules that aren’t necessarily intuitive without a bankruptcy lawyer.  If you’re considering a bankruptcy case, there are many things that you should avoid doing, which may negatively affect your filing.  Avoid doing these 10 things before your bankruptcy filing without first consulting with an experienced bankruptcy attorney.

10) Do not file your case without an experienced bankruptcy lawyer.

Bankruptcy is complicated.  Filing without understanding the bankruptcy code intimately can result in dire results.

9) Do not intermingle your funds with anyone else’s money.

In bankruptcy, you are able to protect property through exemptions.  This often includes a certain amount of cash you own.  If your cash is intermingled with another person’s money, those exemptions may lose their protections.

8) Do not stop making payments on a car or a house you intend to keep.

The bankruptcy can discharge your debt, but it does not remove a creditor’s security interest in property.  Staying current on the vehicle or home payments you want to keep is required.  If you fail to make those payments, the creditor may file a motion to allow them to repossess during the bankruptcy case, or they will simply repossess once the bankruptcy case has been discharged or closed.

7) Do not get divorced.

A debt assigned in a divorce decree is a non-dischargeable debt in a Chapter 7.  If you and a spouse owe on an unsecured debt like a credit card, the divorce decree may assign that debt to one of you.  If that debt is assigned to you, then you would not be able to discharge that liability in a Chapter 7.  However, filing a Chapter 7 prior to the divorce decree being entered could discharge that debt before it is assigned to you.

6) Do not get married.

Eligibility for a Chapter 7 bankruptcy can depend on a person’s family size and household income.  In a community property state, like Idaho, spouse’s share their income as community property.  This means getting married to a high earner could increase your household income to the point where you do not qualify for a Chapter 7.  Filing a Chapter 7 prior to a marriage can prevent such an issue.  In any case, it’s important to discuss the implications of a marriage with your bankruptcy lawyer.

5) Do not gamble.

4) Do not pay back money you have borrowed.

Very specifically, do not pay money back to friends or family.  The Chapter 7 Trustee has the power to avoid a “preference”.  A preference is any money paid back to a friend or family member cumulatively over $600 in the last year.  That period is shortened to the last 3 months for an unsecured creditor that is not a friend or family member.  If the payment falls within the preference period, the Chapter 7 Trustee can demand that money back.

3) Do not give away money or property to anyone for less than their fair market value.

The Chapter 7 Trustee has a myriad of powers in bankruptcy.  One of these is that he can avoid a fraudulent transfer.  This means that if you give away money or property for less than its value prior to your bankruptcy filing, the Trustee can demand that property back from the person that received it.  This does not mean you are absolutely prohibited from selling property.  If you sell property, it must be documented, and for the amount that an uninterested 3rd party buyer would be willing to pay for it.

2) Do not borrow money, in any way, whatsoever.

This includes, but is not limited to, applying for or using credit cards, taking out cash advances, borrowing from friends or family, or payday loans.  Running up a credit card with the intention of filing should also be avoided.  Driving up a debt knowing you will file a bankruptcy case can result in a denial of discharge or a creditor objecting to discharge.  This does not include debts incurred by you in good faith prior to the time you knew you were going to file a bankruptcy.

1) Do not misrepresent information to your bankruptcy lawyer.

The purpose of having a bankruptcy attorney is for them to take the facts of your case, apply a legal analysis, and advise you on the best direction to go.  Omitting facts or hiding from your bankruptcy lawyer prevents them from properly advising you.

If you’re not sure about whether any of these rules apply to you, call out office for a free consultation with our bankruptcy lawyer.  We provide professional advice, and we do not charge anything for the first meeting unless you choose to file through our office.  Give us a call or text at (208) 719-0232.

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