The MN Bankruptcy Blog | Learn the Bankruptcy Process & More

3 Things You Should Never Do Before Filing Bankruptcy In MN

Written by Wesley Scott | February 29, 2016 at 3:30 PM

Have you ever had the experience of buying a piece of furniture that was in a box, not yet assembled? Oh how I hate and I mean HATE assembling furniture. You take everything out of the box, lay it on the floor, and think well this doesn’t look that complicated. So, without further ado, you start screwing this together, and that piece with this piece and things are going fairly well. And then it happens, you are 2/3 finished when a piece of the furniture remains and the furniture just doesn’t quite look right- right?

And then you look in the box, and pull the instructions out. Just great! You missed a critical piece of the furniture and it was in step 2. Now, you have to take the furniture apart and redo the whole thing because you failed to follow the instructions carefully. Is this frustrating? Oh hell yes it’s frustrating. After several expletives, you gain composure and finish the furniture without any other incident.

Filing a bankruptcy is not as easy as putting a piece of furniture together, and it definitely will be far more frustrating if you screw up a bankruptcy than screwing up the assembly to a piece of furniture. Alas, that is why we have trained professionals who have spent years perfecting their knowledge of the Bankruptcy Process. At Kain & Scott, we have been doing bankruptcies since 1972! Do you think we have sharpened our practice since the first bankruptcy case in 1972? There is a reason why they call it the “practice” of law.

If you are considering filing a Chapter 7 Bankruptcy or Chapter 13 Bankruptcy in MN, there are things you want to consider prior to filing. There are also many things you should NEVER do before filing a bankruptcy case.

1) NEVER TRANSFER ASSETS IN CONTEMPLATION OF FILING A BANKRUPTCY

So, you were at the bar having a beer when you over hear Fred who filed a chapter 7 bankruptcy and lost his boat, motor, and trailer. Thinking about filing a bankruptcy yourself and wondering, will i lose my boat if i file for bankruptcy, you immediately leave the bar, grab your boat title and transfer it to your 25-year-old son so you don’t lose the boat in your impending chapter 7 bankruptcy case. Of course, your son has paid you nothing for the boat as the entire transfer was meant to evade your creditors.

The next day, you call a bankruptcy attorney and tell her you are ready to file a bankruptcy. And then the transfer of the boat comes out. Under section 548 of the bankruptcy code the chapter 7 trustee has the right to avoid the transfer of the boat to your son as a fraudulent transfer. By transferring the boat to your son, without receiving fair market value for the boat, you have guaranteed you will lose the boat.

In many of these cases, had the transfer not been made, we could have protected the boat anyway. Getting bankruptcy advice in the bar is a bad idea. Once the transfer has been made, the bell cannot be un-rung. You can’t just transfer the boat back and everything is ok. The problem stems from the first transfer. Now, the trustee will sell the boat and use the proceeds to pay down your debt.

The person who transfers assets risks relatives and friends getting sued and a potential denial of the debtor’s chapter 7 discharge. And for what? To hide an asset often times we can protect anyway?

Always consult with a bankruptcy attorney who is experienced and knowledgeable before transferring anything.

2) NEVER PAY RELATIVES BEFORE FILING BANKRUPTCY

It’s instinctual- you are filing a bankruptcy and don’t want Uncle Bart to get the debt owed to him, by you wiped out, so you pay Uncle Bart $3,000.00 2 weeks before filing a bankruptcy without telling your bankruptcy lawyer.

Section 547 of the bankruptcy code makes any payment to a relative a “preference” if the relative received 600 or more within a year prior to filing the bankruptcy. Oh crap. Now what? Well, some lawyers say you can un ring this bell. It’s not easy to un ring this bell and it’s even more difficult if you absolutely need to get your bankruptcy case filed immediately because your creditors are calling you day and night. So- you file the bankruptcy. A chapter 7 trustee has the right to undo this preference and sue Uncle Bart for the return of the 3k to the bankruptcy estate. Uncle Bart may have some defenses to the preference but an overly zealous chapter 7 trustee does not care. Uncle Bart will make a deal with the trustee or often times Uncle Bart gets sued in the U.S. Bankruptcy Court.

All of this could have been avoided had you waited to pay Uncle Bart until after you filed the bankruptcy. The bankruptcy code prevents creditors from trying to collect from you but it does not prevent you from voluntarily paying creditors.

There are many Benefits Of Using a MN Bankruptcy Attorney. Always consult with an experienced and knowledgeable attorney before paying anyone prior to filing a bankruptcy.

3) NEVER INCUR DEBT WITHOUT THE INTENT TO REPAY

The thought occurs to almost every debtor contemplating a bankruptcy. Well, if I am going to file a bankruptcy, can I use my credit cards a little or have a little fun? Any time you incur debt without the intent to repay, that is called fraud or theft, your choice.

The person files a chapter 7 bankruptcy case only to get a lawsuit served upon them in the bankruptcy case objecting to them discharging the debt with Master Card for 15k because Master Card says you took a 15k cash advance 4 days before filing the bankruptcy. This lawsuit is rooted in section 523 of the bankruptcy code which provides for an exception to discharge if the creditor can show you incurred the debt by fraud.

Now, your bankruptcy lawyer says well you can fight this but it is going to cost you 6k in attorneys fees and if you lose, you will owe the attorneys fees plus 15k. You also risk losing your discharge on all of your other debts if the US Trustee’s Office can prove there was a pattern of this kind of conduct.

Always ask an experienced and knowledgeable bankruptcy attorney before incurring any debt when contemplating a bankruptcy filing.