Bankruptcy is an intimidating process because it deals with your finances and future debt relief. The fact that there is plenty to do and not do when filing for and going through bankruptcy doesn’t help with the stress either. To help you get your start in the right direction, we’ve compiled a quick list of a few things you should NOT do before filing for bankruptcy, whether you are filing for Chapter 7 or Chapter 13.
Five things to avoid when filing for bankruptcy are:
- Overusing your credit card: Most people know that bankruptcy can eliminate all or most of their credit card debt. This does not mean that you are given the green light to overuse your credit card and reach its maximum limit just before filing because it is “going to be discharged anyway.” If a bankruptcy court sees that you loaded up your credit card before filing, then it will, at best, remove those purchases from your dischargeable debt and, at worst, accuse you of bankruptcy fraud.
- Take a loan that creates new debt: You should avoid creating any other new form of debt while you plan to file for bankruptcy. For example, taking a new loan against your home might provide temporary financial relief, but it will likely complicate your bankruptcy later. There is no guarantee that the new debt will be excused in your bankruptcy, either, so you could just be adding debt when the rest of your debt would have been discharged.
- Gift assets to your friends and family: People who are going into bankruptcy will sometimes try to reduce the value of their assets by giving plentiful gifts to their loved ones. While this might seem like goodwill, it will appear to be a form of fraud to the bankruptcy court. If you really do want to gift someone one of your assets, like your car, then you have to make it official by transferring the title, deed, or another certification of ownership. Otherwise, you still need to list that gifted assets in your bankruptcy filing.
- Misrepresent your assets: Never intentionally misrepresent your assets to try to change the outcome of your bankruptcy. For example, many people try to hide assets to pass the means test required to use Chapter 7 bankruptcy. Bankruptcy courts and creditors are good at finding all assets, no matter how well they are squirreled away, so don’t try to hide anything. Be honest about what you own and how much debt you owe others. It will make everything less stressful for you in many ways.
- File with no knowledge of bankruptcy law: A big mistake that many people in bankruptcy attempt is to try to go through their filing alone. Bankruptcy law is complicated, so it takes in-depth knowledge to understand it. If you don’t have the knowledge yourself, then you should seek the guidance and counsel of a professional bankruptcy attorney in your area. Hiring local is a good idea because local attorneys know the preferences and expectations of local courts, as well as the nuances of your state’s bankruptcy laws.
Contact the Law Offices of Wax & Wax if you have questions about bankruptcy in California. We help clients in Glendale and Santa Clarita.