There are several actions you can take to help prepare yourself to file for bankruptcy. However, it is also important to understand what you should not do. Creditors will examine your financial activity leading up to your bankruptcy to spot instances of potentially fraudulent activity, which they can attempt to use to hold you liable for your entire debt. Other actions may be legal but needlessly drain resources that your bankruptcy could have protected. Here are four things you should not do before filing for bankruptcy:
- Incurring Large Debts Right Before Filing: It is extremely rare for individuals to run up their credit cards in order to prevent paying by filing bankruptcy. However, it is fraudulent to incur debts that you have no intention of paying. Once you have consulted with a bankruptcy attorney, you should avoid using any credit cards. A creditor may accuse you of fraud if you use credit to purchase luxury goods or services within 90 days of the date of your bankruptcy filing.
- Attempting to Hide Assets: Intentionally omitting assets during bankruptcy can cause your case to be dismissed. Selling or transferring assets right before bankruptcy might be fraud, and a bankruptcy court may cancel the transfer or dismiss your case. You should consult with your bankruptcy attorney before you sell any assets.
- Repaying Creditors in Advance: Bankruptcy has a process for prioritizing which creditors must be repaid. Paying back an unsecured creditor immediately before bankruptcy is unnecessary and potentially a waste of assets. It is possible that the bankruptcy would not require you to repay that creditor in full. You may have been able to save that money or used it to pay a debt that you cannot discharge (such as your student loan obligation or certain taxes) or your secured obligations that must be paid in order to keep the collateral (such as mortgage and car payments).
- Withdrawing from Retirement to Pay Debts: You may feel tempted to borrow money from your retirement account in order to repay creditors without filing for bankruptcy because your debts are a more immediate concern than saving money for your retirement. Not only are you stealing from your future income, but you may pay a penalty for making an early withdrawal from your retirement account and you lose the benefit of compounded interest over time. Bankruptcy exemptions allow you to protect your retirement money. You can clear your debts while keeping your retirement intact. And this will be critical in your retirement years.
Contact a Denton County Bankruptcy Attorney
Hiring a bankruptcy attorney is vital towards using the process to best clear your debts. A Frisco, Texas, bankruptcy attorney at The Page Law Firm can guide your decisions leading up to and during your bankruptcy. To schedule a free consultation, call 214-618-2101.