Many people turn to bankruptcy after struggling with debt for a long time. If you are considering this option, it is important to understand that the choices you make before filing can affect the outcome of your case.
Here are four issues you should be aware of before taking the next step.
Transferring property to friends or family
Moving assets out of your name before filing can create serious problems. Bankruptcy trustees closely review transactions involving relatives or close friends that take place before you file.
For example, giving away a vehicle, transferring ownership of valuable property or selling something for far less than it is worth may raise concerns. In some situations, the trustee may seek to reverse those transactions. If you are considering bankruptcy, leave ownership arrangements alone until you know how those transfers could affect your ability to protect certain assets.
Repaying relatives ahead of other creditors
Paying back a family member before filing may seem like the right thing to do, but it can complicate the process. Bankruptcy laws aim to treat creditors fairly and trustees often scrutinize payments to relatives more closely than payments to other creditors.
Even if your intentions are good, a trustee may review those transactions and take steps to recover the money. Understanding the rules beforehand can help you avoid unintentionally creating problems for the family member you wanted to help.
Taking on new debt before filing
Adding new debt when you expect to file can create unnecessary challenges. Recent large credit card purchases or other borrowing activity may alert creditors or the court, especially if they do not see a realistic ability or intention to repay. Wait until you know your options to reduce the risk of objections from creditors later on.
Leaving out assets or financial information
Providing a complete and accurate report of your finances is one of the most important parts of a bankruptcy case. You are generally required to disclose your income, accounts, property and obligations.
Leaving something out, even by mistake, can lead to delays and additional review. Complete disclosures help prove your credibility and reduce the likelihood of additional scrutiny later.
Give yourself the best possible start
Careful preparation before filing can help you avoid setbacks and unnecessary stress. If you are considering bankruptcy, seeking legal guidance early can help you understand your options and identify potential issues before they become larger problems.