Coming to the realization that you need to file a Chapter 7 bankruptcy usually doesn't happen suddenly. Typically, people in financial distress severe enough to contemplate bankruptcy spend many sleepless nights worrying about how to pay their bills and they avoid answering phone calls because they may be from creditors. During this time, they may unknowingly make mistakes that could cause problems when they do file for bankruptcy. If you are beginning to realize that a bankruptcy filing is on the horizon, you'll need to avoid doing the following things.
Do not pay certain creditors and not others
When you're strapped for cash, it's often difficult to juggle bills so all your creditors are paid. Often, people in this situation find themselves paying certain creditors and not others. Perhaps they are trying to keep their vehicle from being repossessed so they avoid paying a credit card bill, or they owe a family member money and want to stay on good terms with him or her so they repay them and ignore their other creditors. You'll want to avoid favoritism because choosing one creditor over others is considered fraudulent activity in bankruptcy court.
Do not transfer funds
In a Chapter 7 bankruptcy, all of your assets will be assessed and some will be taken from you to pay your debt. If you transfer funds before you file for bankruptcy, the trustee assigned to your case may file what is called an adversary complaint for constructive fraud. For example, if you have a savings account and you try to protect it by transferring the money to a relative to hold on to it for you, this can be considered a fraudulent activity.
Do not sell real estate property
Selling real estate property before a bankruptcy filing can be considered fraudulent, especially if the money from the sale was not used to repay debt. It's important to understand that your bankruptcy trustee will look over all of your financial documents and records, including the time leading up to your financial situation at the time of filing.
This means that he or she will see your financial history and will be able to tell if you sold property and what you did with the money if you did. An example is if you sell property and use the money to buy things like new furniture, clothing, or other things you know will be exempt from the bankruptcy. This would also be considered fraudulent activity.
Do not go on spending sprees with your credit cards
Creditors in a Chapter 7 bankruptcy are able to file adversary complaints if they believe you went on spending sprees with their credit cards before you file for bankruptcy. This type of complaint would actually be a lawsuit filed against you within your bankruptcy case.
If this happens, you will receive a summons and be required to submit an answer within a specified number of days according to the laws of your state. If you do not file an answer, the court will award the plaintiff a default judgement, which could mean you'd be obligated to repay that debt and it will not be discharged as part of your bankruptcy case.
An example of this type of fraudulent activity would be if you were to take your family on an expensive vacation knowing that you will file bankruptcy soon after. However, if you use credit cards to travel out-of-state for a family emergency, this may not be considered fraudulent. If you receive a summons for a lawsuit filed against your bankruptcy, hire a lawyer to help you file an answer to the complaint.
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