5 Things NOT to Do Before Filing Bankruptcy

Are you considering filing a bankruptcy case in Minnesota to relieve your debt problem?  If so, you may have already found a great deal of information about what you should do prior to filing bankruptcy; however, the things you should NOT do prior to filing bankruptcy are just as important.  In many cases, what you do prior to filing bankruptcy may not have a direct impact on your bankruptcy case. However, there are a few actions you can take that may negatively affect your case.  Below are five things you should never do if you are contemplating filing a bankruptcy case.

Don’t pay family money that you owe them - if you have, stop immediately.

When you file a bankruptcy case, you must include information regarding any payments to creditors, or insiders, within a certain period prior to your bankruptcy filing.  This is to prevent one or more creditors from receiving a “preference” over other creditors.  Family are considered as “insiders” for bankruptcy purposes.  Therefore, any payments you make to family within one year of your bankruptcy filing could present a problem in your case. If you have made payments to family, discuss this with your bankruptcy attorney as it may or may not be a problem depending on the circumstances.

Don't sell or give away assets for less than fair market value to anyone.

If you are considering filing bankruptcy, it is best if you do not sell or give away anything before consulting with your attorney. However, if you do decide to sell an asset, doing so for less than fair market value can cause problems for the person receiving the asset. If you sell an asset and receive less than fair market value, the trustee may be able to “undo” the transaction and recover the asset for the estate. If you must sell an asset prior to filing bankruptcy, discuss this with your attorney to ensure that the transfer will not affect your case.

Don’t ask a non-attorney for bankruptcy advice - always a bad idea.

Bankruptcy is a complex area of law. Even innocent actions that seem harmless can cause a problem with your bankruptcy case. You would not trust your health to someone other than a doctor — you should not trust your financial future to someone who does not understand bankruptcy law completely.  Family and friends are eager to help and offer advice; however, they are not trained and skilled bankruptcy attorneys.  If you follow their advice, you may be jeopardizing your future.

Don’t incur debt knowing you are going to file bankruptcy.

If you incur debt immediately prior to filing bankruptcy, that debt may not be discharged in bankruptcy. In other words, you will still owe that debt and the creditor can take whatever legal action they deem is necessary to collect the debt.  In some cases, you could be charged with bankruptcy fraud if you knowingly borrowed money or used credit with the intent of filing bankruptcy to discharge the debt.

Don’t transfer assets to anyone without first consulting a bankruptcy attorney.

Transferring assets prior to bankruptcy, even if you sell the asset for fair market value, could jeopardize your case. Before selling or transferring any assets, you should discuss the situation with your attorney. In some cases, you may be able to sell an asset for fair market value without any negative consequences but you must be careful how you use the funds you receive from the transfer.

Can I Still File Bankruptcy If I Do One Or More of the Above Things?

The above situations can complicate a bankruptcy case; however, they do not necessarily prevent you from filing bankruptcy. To determine how an action will affect a bankruptcy filing, be sure to consult with an experienced bankruptcy attorney. Each person’s situation is different and the circumstances involved are different.  Until you discuss your situation with a bankruptcy attorney, it is impossible to determine if the above matters apply in your case.