Whether you plan to file for bankruptcy under Chapter 7 or Chapter 13, there are definite actions you need to avoid in order to be sure your debts are discharged or that the court will approve your reorganization plan. These are suggestions and not intended to be a complete list. Your bankruptcy attorney will provide you more detailed information.
- Avoid transfers of assets that may appear to be preferential. If you repay loans to family members within one year prior to filing your bankruptcy petition, or completely pay some creditors in the 90 days preceding your filing, the trustee has the option of filing an adversary proceeding and asking for the funds to be returned to your estate. The funds will then be used by the trustee and distributed among all your creditors.
- Quit using your credit cards 70 to 90 days before filing. If you max out your charge cards or take out loans for luxury items, the trustee may view the debts as fraudulently incurred. The burden is then upon you to prove that you intended to pay the debts at the time you agreed to them. If the trustee does not believe you, those debts will not be discharged and you can possibly be charged criminally for fraud. Food, shelter or medical expenses are considered necessities of daily living and will not subject you to allegations of fraud.
- Avoid hiding non-exempt assets. Assets that the bankruptcy court can take and sell to pay creditors are referred to as non-exempt assets. If you transfer ownership to a family member or friend during the one-year period prior to filing for bankruptcy, the trustee has the option of dismissing your petition without discharging any debts. In addition, you may be criminally charged for bankruptcy fraud.