A significant amount of stress comes with debt. For individuals who have a lot of debt, bankruptcy could be a viable option to eliminate some debt and ease a stressful financial burden. If you are considering bankruptcy in the near future, there are some actions that you will want to avoid.
Engaging in certain behaviors could jeopardize your ability to file for bankruptcy.
An experienced bankruptcy attorney will be able to help you navigate the bankruptcy process, so consult with an attorney before you do anything drastic with your finances.
1. Transferring Assets
Many people mistakenly believe that they will not be able to file for bankruptcy if they have assets. It's critical that you don't transfer the title to any of your assets if you are considering bankruptcy.
Transferring ownership of your assets to a friend or family member will not protect the assets from bankruptcy. In fact, a bankruptcy court could view these types of transfers as fraudulent, making it impossible for you to file your bankruptcy petition.
Your attorney can help you identify your assets and discuss ways that you can preserve these assets throughout the bankruptcy process.
Many people are able to maintain ownership of a home or vehicle when going through bankruptcy, but this can only be done with the help of an experienced attorney.
2. Paying Off Creditors
You may think that paying off certain creditors will help you be more successful when filing for bankruptcy in the future. The opposite may actually be true. Any out-of-the-ordinary payments that you make to a creditor can be viewed by the bankruptcy court as a preferential transfer.
Essentially, you are saying that the creditor you paid is more important than other creditors you still owe.
The bankruptcy trustee may choose to file a clawback lawsuit against the paid creditor to regain possession of the funds and distribute them evenly among all creditors. This type of clawback lawsuit could delay your bankruptcy case and end up costing you money in the long run.
An experienced bankruptcy attorney will be able to help guide you through the filing process and ensure that all creditors are included in your petition. There is no need to make any pre-bankruptcy payments.
3. Depositing Extra Money
The bankruptcy court evaluates your debt-to-income ratio when determining if you are eligible to file for bankruptcy. This means that you want only your actual income (from an employer or self-employment) to appear in your bank account.
It's common for friends or family members to lend money when a person is in financial need. You are able to accept these gifts, but they shouldn't be deposited into your bank account at any time.
Avoiding extra deposits will prevent the court from viewing the gifts as a source of income and factoring the additional money into your bankruptcy equation. If you aren't sure whether or not you should deposit specific funds, consult with an attorney before taking action.
4. Filing a Lawsuit
There are many reasons why you may choose to file a lawsuit. Maybe you were injured in an auto accident. Maybe you entered into an agreement with a business that broke their contract.
Regardless of the reason, you shouldn't file a lawsuit if you intend to file for bankruptcy. Any settlement money that you receive as a result of the lawsuit will immediately become part of your bankruptcy estate.
The money will be handed over to the bankruptcy trustee, then distributed among your creditors.
Consult with an experienced attorney if you feel you have a valid lawsuit. Your attorney can help you determine the right time to file both the lawsuit and the bankruptcy to help reduce the amount of money you could lose.
For more information, reach out to a firm like Havner Law Firm.