Here is what is happening to someone knee deep in debt: The phone is ringing off the hook. Emails are pouring in. The creditors are sending what might as well be called “hate mail.” The stress is unbearable. It may be time to raise the proverbial white flag and consider bankruptcy. But during this period of chaos, it is hard to make sound financial decisions. When the pressure is high, people take drastic measures jeopardizing their future ability to eliminate debt. Here are five off-limit actions during the 90 days prior to filing for bankruptcy:
Don’t transfer money to friends or family members.
Transferring assets to others raises a huge red flag in bankruptcy court. It gives the fraudulent appearance that money is being hidden.
Don’t Withdraw funds from an Individual Retirement Account or Retirement Account .
Money saved in Individual Retirement Account and 401ks are protected in bankruptcy. Tax ramifications will occur if a debtor withdraws this money to pay back creditors. Plus, it could create an asset that may be taken away during bankruptcy.
Don’t continue to use credit cards.
There is an eminent fear of losing everything prior to bankruptcy, so the appeal of maxing out a credit card increases during these desperate times. Do not consider using a credit card to purchase any large items or for a large cash advance. If this is done with no intention of paying the money back, it is considered punishable by law.
Don’t pay back a “favorite” creditor.
At this point, it may seem smart for a debtor to pay back a friend or family member from whom they borrowed money. Bankruptcy courts not only frowns upon this, they may make that person give back the money so other creditors get paid first.
Don’t Take Any Major Financial Steps Without Speaking to Your Bankruptcy Attorney.
The bottom line is the Bankruptcy Rules are not logical. Any major financial changes shortly before a bankruptcy filing is subject to scrutiny. That is why we encourage our clients to talk with us prior to making any major financial changes and to ask, “what impact would this action have on my bankruptcy.” That is why we welcome client phone calls and questions. It so so much easier to guide clients prior to filing a bankruptcy to make the right decision rather than trying to fix a mistake caused merely because the client just did not know what to do.
Visit our website for more information on the dos and don’ts of bankruptcy.