Chapter 7 or Chapter 13 Bankruptcy: What Not to do Before Filing
Updated: Feb 8
When you file a bankruptcy petition, you are filing a voluntary bankruptcy petition, as it is called. However, the word voluntary applies to your decision to file the petition, not as to what information you must provide to the court. Debtors are often surprised at some of the information required of them, in particular those questions asked on the Statement of Financial Affairs.
Those questions are geared towards finding out what has necessitated the debtors situation, and in particular what activity the debtor has engaged in for the previous 12 months before filing. Some things the debtor did in that time, whether done innocently or not, can come back to haunt the debtor or necessitate the debtor hold off filing the bankruptcy petition.
Therefore, it is important to note activity the debtor should not engage in prior to filing bankruptcy. Prior to filing, debtors should not do the following:
Use your credit cards with 90 days of filing
Take out credit card cash advances within 90 days of filing
Pay off a debt to a family member or friend within a year of filing
File if you are expecting to receive a sizeable tax refund or inheritance.
Give or gift property to anyone
Pay more than $600 on a past due bill
Cash out retirement plans or 401(K)s
Take out payday loans
Put money in your children’s bank accounts
Fail to appear at State Court hearings
Although those warnings are provided for a variety of reasons and doing any of them will result in different consequences from the next, they will all result in adverse consequences for the debtor. Among the potential consequences:
Money debtor paid to a family member prior to filing could be recovered by the trustee to go to the debtors creditors
A credit card provider could have part of all of its debt determined non dischargeable
An inheritance can be forced to be turned over to the trustee
Money paid on a credit card bill prior to filing could be recovered by the trustee, in turn keeping the debtors bankruptcy case open longer and resulting in the case being deemed an asset case
A transfer of property can be rescinded
When considering their actions prior to filing, prospective debtors should ask themselves the following question: If someone was going to not pay a debt to me, what questions would I ask of them before forgiving that debt? Rest assured, the trustee and the bankruptcy court will be asking the debtor the same question and more; therefore, if the debtor is considering doing something that does not pass the smell test, then the debtor should know it should not be doing it.