If you have made the decision to file for bankruptcy, you are likely eager to move forward as soon as possible. You know that bankruptcy provides a financial fresh start, and you are in a hurry to put your financial problems behind you. However, it is sometimes best to wait to file. You should be aware of what not to do before filing bankruptcy.
The reason is that bankruptcy courts look back at your financial activity over a period of time. The general overall lookback period is one year, but certain actions may be considered for a shorter or longer period of time. Once you make the decision to file, wait until enough time has elapsed if you have performed any of these actions.
Moving funds to someone else’s bank account, transferring vehicle titles, removing your name from bank accounts or business ventures, and deeding real estate to another person are just a few examples of asset moves that are looked upon unfavorably by the courts. These could result in a denial of bankruptcy discharge. Courts recognize that people in financial trouble sometimes divest themselves of assets in an effort to catch up. You will likely be asked whether you transferred any assets in the past year and what you did with the money. Answer truthfully, and be careful to avoid the appearance of shady dealings. In Pennsylvania, if you have transferred real estate or other property, State law allows a look back period of four years. Therefore, if you have sold property, it is generally not a problem at all. However, by just transferring property such as a house, and giving it away to a friend or relative without getting any payment, that could potentially cause a problem. An experienced bankruptcy attorney can advise you if there is any problem with a transfer that you have done.
Make a Preferential Transfer
A preferential transfer is defined as a payment to a particular creditor that is more than the creditor would have received under your bankruptcy. The normal lookback period for preferential transfers is 90 days, but the court will consider payments made to friends and relatives in the past year. Preferential transfers can be undone by lawsuit, which could be awkward if your best friend is sued. There are some defenses to preferential transfers, but it is better to avoid them altogether. Note that it is acceptable to pay your regular monthly payments, but not payment in full or any payments out of the ordinary on older credit card debts.
Incur New Debt
Courts look back 70 to 90 days to determine if you racked up new debt without intending to pay it back. If possible, avoid taking out new loans or using your credit cards during the three months preceding your bankruptcy filing. If you absolutely must use credit to obtain the essentials of life such as food, gas, or housing, keep records of good records of those transactions since many people have used their credit cards before going to a bankruptcy lawyer and those transactions tend to be viewed as necessities and usually do not cause any problem at all.
Deplete Protected Accounts
Certain accounts, such as your 401(k) and most retirement accounts, are exempt in bankruptcy. Do not drain them to pay creditors that would otherwise be discharged in your bankruptcy. This is a very complex area of the law, so ask your bankruptcy attorney for advice that applies to your case.
Have Unusual Bank Account Activity
Any funds that are in your bank account during the lookback period are considered yours, even if they actually belong to someone else. Moving them around, such as transferring them to the person they actually belong to, could look like you are fraudulently moving assets. Try to make sure that the only money that enters your accounts is yours, and spend it on the things you need to live. Your bankruptcy attorney can advise you if there is any issue with the accounts that you have and any actions you have taken with the accounts.
Other future monies
You might not need to file for bankruptcy if the amount you will receive is significant. You might be better off waiting and using that money to settle debts on your own. Ask your bankruptcy lawyer for specific advice because if you settle a debt and don’t pay it back in full, you may have to pay taxes on any amount you don’t pay. In a bankruptcy you do not have the tax problem.
Timing your bankruptcy is of critical importance. As soon as you decide to file, stop performing any of the above actions immediately, and discuss with your bankruptcy attorney if you should file now or wait to file until an appropriate length of time has passed. Although it is tempting to get your bankruptcy over and done with as soon as possible, in some circumstances it may be best to wait a number of days or months in order to file. Your bankruptcy attorney can advise you what will happen in your specific circumstances so that can proceed the best way.
If you are ready to take the first steps toward financial freedom, call The Law Offices of David M. Offen today at (215) 625-9600 to schedule your free initial consultation. We’re here to help you every step of the way.