Filing for bankruptcy requires honesty, precision and a commitment to financial responsibility. Mistakes, whether unintentional or willful, can result in your bankruptcy case being tossed by a judge or criminal charges. We can use real and hypothetical examples to show what you should never do before filing for bankruptcy.
- Be dishonest: Filing for bankruptcy requires a listing of current and past financial information. This includes debts you have accrued, current assets, income and expenses. Several months back, we wrote about the star of the series Dance Moms and how she failed to disclose $755,492 of income. The judge presiding over her Chapter 11 bankruptcy case was channel surfing and saw her appear on American Idol. Shortly thereafter, the judge realized it was possible the television star had committed bankruptcy fraud. The Dance Moms star now faces $250,000 in fines for each count of fraud and five years in prison.
- Take on more debt: Courts will not allow discharges on debts accumulated 70 to 90 days before bankruptcy. For example, going out and leasing a new BMW four weeks before you plan to file for bankruptcy. Depending on the circumstances, this could be considered fraud, especially for larger expenses.
- Transfer assets or money: Never transfer assets or large sums of money before filing for bankruptcy. Remember Toni Braxton, the pop singer from the 90s? In 2012, she was accused of bankruptcy fraud by the trustee for transferring $53,490 to her estranged husband instead of paying back creditors. Transferring money before filing or during bankruptcy looks suspicious.
Honesty Pays Off Before Filing for Bankruptcy
Honesty and precision make it far more likely your bankruptcy case will succeed in discharging, reducing or reorganizing debts. Dishonesty can have serious consequences, as we have seen from our examples. Mistakes are far less likely when attorneys are involved early on in bankruptcy cases.