Certain actions prior to filing a bankruptcy case can cause you to have problems with the case. These 5 items are particularly troublesome and as a Georgia Bankruptcy Lawyer, I see clients every week who have done one ore more of these things. So hopefully, you’ve come across this list well in advance of filing your case.
Don’t transfer property to friends or relatives. Transferring property to friends or relatives within a year of filing bankruptcy is a great way for you or your friend to lose the property. The bankruptcy laws allow the bankruptcy trustee to undo transfers to friends and family if the trustee can liquidate the asset and use the money to pay your creditors. There are certainly some considerations that must be met before the trustee can take this action, but bottom line is that it is a bad ideal to put your assets at risk without consulting a bankruptcy attorney.
Don’t take an early distribution out of your 401k. As a Newnan, Georgia Bankruptcy Attorney, I see this happen with heartbreaking regularity. Retirement assets are one of the few things that can have a large value and that can also be fully protected in a bankruptcy case. Once the money is taken out it becomes a cash asset unless you spend the money. If you spend the money on anything other than living expenses or necessary items, then you may have caused yourself unnecessary problems with your case. If you absolutely must take some money out of the 401k, then you’d be much better doing it as a loan rather than an early distribution.
Don’t pay more than $600.00 to any of your creditors. If you pay any creditor (including mom) more than $600.00, the trustee can force the person you paid to give the money to him (even if it’s been spent) so he can use it to pay some money back to all of your creditors. This is an especially bad result when the money you used was from your 401k – see above.
Don’t pay off your cars or other expensive property. Property that you own free and clear is an inviting target for the bankruptcy trustee is the property is valuable. Under no circumstances should you pay off your car without talking to your bankruptcy lawyer or clearly understanding your states bankruptcy exemptions. If you create equity in your property above your exemptions, there is a good chance you can lose the car, or have to pay the trustee to be able to keep the car.
Don’t run up or use creditor cards. Credit card use within 6 months of filing your case can be problematic. Creditors have the right to challenge your ability to discharge the debt you owe them. It is a difficult argument to make in almost all cases; however, significant credit card usage prior to filing bankruptcy is one that can succeed. The prudent option is to avoid any credit card use at all for as long as possible prior to filing a bankruptcy case otherwise, you should be prepared to pay some of it back if you’ve spent money on anything that isn’t an absolute necessity.