Things you shouldn’t do right before filing for bankruptcy

If you’ve made the decision to file for bankruptcy, you’re making the choice to get back on track to financial stability. If you know you’re going to file soon, there are a few things you should remember not to do, as they will damage your bankruptcy case and your eligibility for a discharge.

Don’t max out your credit cards

Even though it might feel like swift justice to buy as much as possible on your credit cards days before filing for bankruptcy, it is very dishonest and reflects poorly on your character. The minute you think you’re going to file for bankruptcy, you should stop using your credit cards. If you go on a spending binge just prior to filing, there’s a big possibility your debt will not be discharged. In one portion of the bankruptcy code, debt exceeding $500 for luxury goods or services incurred within 90 days of filing is considered nondischargeable. Creditors might even look farther back, so stop using your credit cards all together.

Don’t pay off debt to your relatives

Once you make the decision to file, you might think it’s a good idea to begin paying back people close to you like family or friends. While it’s a nice gesture, it’s also the wrong thing to do. All debt is supposed to be considered equal, so if you pay money to relatives, it will be considered a preferential payment. There is something called a “look back period” when your payments are analyzed by a trustee for preferential treatment. If you pay back family members, but not other creditors, your family might have to give the money back to you. Talk to your attorney about your previous repayments if you’ve paid back a friend or family within two years of filing.

Don’t “give” all your assets away

An often heard refrain when filing bankruptcy is to give all your assets away or put them in someone else’s name. When you file for bankruptcy, you will have to list all the property you transferred out of your name or sold. You are allowed to sell your assets with the exchange of money, but “giving” something like a car to your friend as a gift prior to filing will be seen as a fraudulent transfer. If they deem something to be a fraudulent sale you made to get it out of your hands, the item will be put back in your name and possibly sold.

Don’t take out extra mortgages or money from 401 K to pay debt

Certain assets are exempt from the hand of bankruptcy including your 401 K. A bankruptcy court will not take your 401 K to distribute among creditors, so you shouldn’t do it either. Paying back items like credit cards or certain loans with this money doesn’t make sense because those debts will be discharged in bankruptcy court.

Don’t wait too long

Finally, if you know you need to file for bankruptcy, don’t delay the process. If you are even considering filing for bankruptcy, you should seek the advice of a professional bankruptcy attorney who will go over the best options with you. The longer you wait, the more time it will take for your life to get back on track. Rebuilding credit also takes time, so you should file as soon as possible. Again, don’t hesitate to consult with a bankruptcy attorney today.