What Steps to Take – and Not Take – Before Filing for Bankruptcy
Serious financial stress can cause people to look for immediate relief. As tempting as it can be to start moving money around and trying to consolidate your debt, you may be better off filing for bankruptcy protection. To get the most out of this remedy, whether through Chapter 7 or Chapter 13, you and your attorney should sit down and do some pre-bankruptcy planning.
Things to Do
Depending on your particular needs and circumstances, it may be advisable to take the following steps prior to filing your bankruptcy petition:
- Pay off past-due rent, utility bills and overdue bills for other essentials.
- Stop automatic payments so that money isn’t accidentally taken out of your account after you file the petition.
- File any tax returns that you may have failed to file in years past.
- Close checking and savings accounts at any bank where you have an outstanding loan. (It’s easier for a bank to get court approval to seize your account if they are going to apply the money to a loan you owe them.)
- Complete a credit counseling course. This is in fact a required condition of filing Chapter 7.
Things Not to Do
Your bankruptcy case will go more smoothly if you avoid doing certain things before filing, such as:
- Taking on more debt in the form of cash advances, loans or credit cards — Creditors may accuse you of fraud if you run up debt within 90 days of filing, arguing that you never intended to pay it back because you knew you were about to file for bankruptcy.
- Transferring assets to other people — The court could consider gifts or other conveyances of money or property to be fraudulent transfers, which can be cause for denial of bankruptcy relief.
- Repaying loans owed to family, friends or business partners — Paying off arms’ length loans right before bankruptcy could be considered preferential transfers. The bankruptcy trustee could sue the recipient to recoup the money.
- Draining your retirement accounts — These funds are a key source of your future financial health and in most instances they will be exempt from liquidation during bankruptcy.
If you’ve already done some of the “don’ts“ on the list, make sure to let your lawyer know right away so he or she can take that into account when preparing your Chapter 7 or Chapter 13 case.
If your financial situation is becoming too much to bear on your own, reach out to The Law Offices of Michael Jay Berger for help. The bankruptcy and debt relief attorneys at my Beverly Hills firm help people find financial relief every day. You can arrange a free consultation by calling me at 310-271-6223 or contact me online.