Ask a Lawyer: What Not to Do Before Filing Minnesota Bankruptcy

Posted by William Kain on January 18, 2018 at 8:30 AM
William Kain

When you are contemplating a MN Bankruptcy filing, there are several things that you should not do before filing your petition. Taking certain actions immediately prior to filing for bankruptcy relief can hurt your bankruptcy case and turn a simple bankruptcy into a complicated case, at risk of having your bankruptcy discharge denied.

If you ask any experienced Minnesota Bankruptcy Lawyer, they will tell you there are several things that you can do prior to filing bankruptcy that could potentially harm your bankruptcy case.

A. Incur New Credit or Max Out Your Credit Cards

Using credit cards or obtaining new loans with the intention of filing bankruptcy is fraud. Small, necessary charges right before filing bankruptcy will not attract the attention of a creditor; however, if you incur substantial debt prior to filing bankruptcy, the creditor will likely object to the discharge of those particular debts. In some cases, the creditor may allege that you committed fraud, which carries severe and significant penalties.

B. Cash Out Your Retirement Accounts

In most cases, your retirement accounts are protected in Minnesota Bankruptcy. However, the moment you withdraw these funds, prior to filing bankruptcy, you turn these exempt assets into non-exempt assets. In other words, the money you withdraw from your retirement will be subject to seizure by the bankruptcy trustee to pay your debts.

C. Pay Off Select Creditors

If you pick and choose which creditors to pay, you are creating preferential payments. For example, if you pay off a debt owed to a long-time business associate immediately prior to filing a bankruptcy, the trustee will sue that creditor in an attempt to collect the money that you paid. The trustee will then disburse that money on a pro-rata basis to all of your unsecured creditors.

D. Ignore Collection Attempts

Creditor collection attempts should not be ignored entirely. Some creditors, when they go unpaid for a significant period of time, choose to file lawsuits in order to get the money owed them. Filing a bankruptcy can stop a lawsuit and discharge the debt; but, the judgment will remain on your record and can create problems when you are trying to recover after your bankruptcy.

E. Transferring Assets

Some people believe that they can protect their property by transferring it to friends or relatives. Other people think that selling their assets to get cash is better than allowing the court to liquidate assets to pay creditors.

Transferring assets to hide them is bankruptcy fraud. Furthermore, if you transfer assets prior to filing bankruptcy, the trustee may be able to void the transfer so the funds can be used in your bankruptcy.

F. Paying Family Members

If you give money to your family members prior to filing bankruptcy, the trustee has the right to sue your family member to recover the payment. Bankruptcy laws do not permit you to play “favorites” by paying back your family members while ignoring the debts that you owe to other creditors. Before you pay any family members, you should ask a lawyer, to avoid any problems after you file your bankruptcy case.

Avoiding these actions will ensure your bankruptcy case proceeds through court as smoothly as possible. If you have any questions about what not to do before filing bankruptcy, ask a lawyer you trust.

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Topics: Bankruptcy

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