What NOT To Do Before Filing Bankruptcy
September 9, 2015
If you are in a financial situation that may require a bankruptcy filing sooner or later, then there are some things to keep in mind. Pay attention to the following pre-bankruptcy considerations that can help you if you do eventually have to file.
DO NOT borrow, or withdraw from a 401k, IRA, or any other ERISA savings and retirement plans to help pay for bills.
Doing so from any of these retirement accounts will usually make you liable for penalties and income taxes, which usually cannot be discharged in bankruptcy. 401k plans, ERISA retirement accounts, and IRA funds in Michigan are all exempt from creditors in bankruptcy. Withdrawing from them, or cashing out can cause the accounts to lose their protection. Retirement accounts can usually be protected through Chapter 7 bankruptcy, so speak with an experienced attorney for advice before you do ANYTHING.
DO NOT take a mortgage or home equity line of credit on your home to pay debt.
You are paying a creditor that could easily be discharged through a Chapter 7 Bankruptcy. If you take out a second mortgage or home equity line of credit against the equity in your home, you are basically converting your unsecured debt (debt that can be discharged through bankruptcy) into debt which you will be required to pay. Unfortunately, many people take equity out of their home to pay credit card debt and are unable to afford the additional mortgage payments, which eventually results in a foreclosure of their home. We don’t want you to go through something terrible like that, and we, your local New Baltimore bankruptcy attorney, are here to help every step of the way.
DO NOT pay $600 or more to relatives or business partners that you owe.
Many people find this difficult to understand, but bankruptcy is meant to be fair, not only to you but to the creditors as well. So if there’s some asset that a bankruptcy trustee can recover for the benefit of the creditors, it is distributed fairly among each creditor. Lets say you paid back mom after she helped you with your house payment for a couple of months. If you paid her back within a one year period before you filed, they call that a bankruptcy preference. You preferred this creditor (your mom) over your other creditors, which is just totally “unfair,” or at least that’s how the bankruptcy court views it. Keep in mind that payments to any other creditor within 90 days of filing bankruptcy, is also a preference.
DO NOT transfer real or personal property you own into someone else’s name.
Transferring property, such as your home or car, into someone else’s name, is considered a fraudulent transfer. Your bankruptcy discharge could be denied by the bankruptcy court, and the trustee could also confiscate the property from the person to whom it was transferred.
This may seem like a lot to think about if you are inquiring about bankruptcy, but your New Baltimore bankruptcy attorney can help you figure it all out. Call attorney Jeffrey Randa’s office today for advice on what to do about your current fiscal state, or for a free consultation!