Things You Should Not Do Before Filing for Chapter 7 Bankruptcy
Chapter 7 bankruptcy is a debt forgiveness remedy that allows individuals to discharge most of what they owe creditors, such as credit card debt, medical bills and personal loans. Though some people think of bankruptcy as a last resort, if used effectively it can steer you out of financial straits and set you on a path to resuming financial health.
However, people considering Chapter 7 bankruptcy often find themselves besieged by misinformation about what the remedy is and about how to get maximum benefits from it. They sometimes take actions before filing a petition that can actually hurt their case. Here are seven risky actions you should avoid:
- Giving away or sell property within two years of filing — The bankruptcy trustee may be able to recover that property for the benefit of your creditors. This is especially true if you transferred the property to a family member or friend.
- Maxing out your credit resources — If you incur significant debt in the months prior to filing, it may be seen as evidence that you are not acting in good faith and perhaps that you are trying to defraud creditors.
- Using retirement funds to pay off debt — Retirement funds, such as 401(k)s and IRAs, are generally protected from bankruptcy. However, any money you withdraw from accounts will become part of your bankruptcy estate and may be used to pay your creditors.
- Taking on new credit card debt within 90 days of filing — Any credit card debt that you incur within 90 days of filing for bankruptcy is considered to be nondischargeable debt. This means that you will still be responsible for paying it off, even after your bankruptcy is completed.
- Taking out cash advances within 70 days of filing — Any cash advances made within 70 days of filing for bankruptcy are also considered to be nondischargeable debts.
- Paying off debts to family members or friends within a year of filing — These payoffs are considered insider transactions and the bankruptcy trustee may be able to reverse them.
- Making large purchases within 90 days of filing — If you buy expensive items in the three months leading to filing, the bankruptcy trustee may be able to bring them back into the estate to the extent they are not eligible for exemptions. If you used a credit card or if you otherwise financed the purchase, the creditor might claim the debt is nondischargeable.
If you are considering filing for Chapter 7 protection, it is important to consult with an experienced bankruptcy attorney who can advise you on what steps to take — and not to take — prior to filing.
The Law Offices of Michael Jay Berger in Beverly Hills is one of Southern California’s most active bankruptcy law firms, with 12 locations in the region. Feel free to contact us online or call 310-271-6223 to schedule a free initial consultation.