Written By:Scott Glatstian
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Bankruptcy can seem intimidating, but with a licensed attorney’s help, the process of filing for bankruptcy can be simplified. Before filing for bankruptcy, there are several things one should avoid to ensure they qualify for bankruptcy and do not violate any bankruptcy laws.
Many people give away their assets, run up their credit card debt, and fail to consult a lawyer, all of which can cause detrimental consequences when filing for bankruptcy. These consequences range from having the case dismissed all the way to serving jail time. This article will review common mistakes made when preparing to file for bankruptcy, their consequences, and what to do to avoid these mistakes.
Transferring Assets to Another Person
One common mistake people make when considering bankruptcy is giving away their assets, only to eventually reclaim them after they file. These assets might be a house, car, boat, or art work. Bankruptcy laws require all assets to be reported in order to determine if the person qualifies for bankruptcy.
Those trying to hide assets do so by not reporting them, giving the property away to get it back at another time, or creating fake documents to make the asset seem like it has little to no value. Some people also leave out assets in order to make sure they qualify for bankruptcy. Leaving out assets is not a good idea, and there’s no guarantee that omitting them would even help a person’s chances. Nonetheless, if the court finds out that some or all assets were purposely not reported, it could result in major consequences. If the court finds out, a person will have their case thrown out and could possibly be banned from filing again. Bankruptcy fraud is a federal offense under the United States Code 18 Section 157. Moreover, committing bankruptcy fraud could result in criminal and monetary charges.
Some people may innocently forget to report certain assets. Assets that are sometimes overlooked might include lawsuits filed, co-owned assets, retirement funds, or even trusts that the person is a beneficiary of. As soon as the filer has discovered the asset, it needs to be reported immediately before someone else does. If it is discovered by someone else before it is reported by the filer, it could result in the court revoking or denying debt discharge.
There are many ways a court-appointed trustee could find hidden assets. They could find these assets by reviewing debts, payroll slips, bank statements, tax returns, or even pictures posted on social media accounts. In 2016, Grammy award-winning music artist, Curtis Jackson (aka 50 Cent), sought to file for bankruptcy. Jackson had posted a picture on social media displaying stacks of money that spelled out the word “BROKE.” The court viewed this picture as disrespectful and also as potential evidence that Jackson committed bankruptcy fraud by hiding assets. Always be sure to double-check to make sure there are no hidden assets to avoid potentially being accused of bankruptcy fraud. Take care to identify all assets and report them.
Filing for bankruptcy is supposed to help a financial situation, and being dishonest could ruin the chances of reaching financial stability or could have even more serious consequences. Depending on the state bankruptcy laws, a dishonest person could face up to $250,000 in fines and up to five years of jail time.
Instead of contemplating this approach, an attorney can help determine if and how a person can keep certain assets after filing for bankruptcy. Being dishonest in this situation has more consequences than being honest about assets.
Running Up Credit Card Debt
Another common mistake people make before filing for bankruptcy is running up their credit cards because they believe they will not have to pay it all back. First, not every bankruptcy case will get all debt discharged, though non-fraudulent unsecured credit card debt will typically always be discharged in a successful Chapter 7 filing. Still, when considering filing for bankruptcy, it’s important not to run up credit card debt because it could have major consequences.
Not all types of bankruptcy discharge all debt, and it can be difficult to qualify for the type of bankruptcy that could discharge this debt. There is no guarantee that this debt will be discharged. Also, creditors can easily see that a person used their entire balance right before filing and would have good standing to challenge the request to exempt the debt from the proceedings. This could result in the person having to pay the entire debt even after filing for bankruptcy. A creditor could also try to push for criminal charges for this act.
According to the United States Code 11 Section 523 (a)(2)(C)(i)(l), using a credit card for luxury goods and services 90 days before filing could allow the court to presume fraud. This code also states that the court could presume fraud if a cash advance of more than $1,100 is made 70 days before filing.
In order to avoid criminal charges and paying a lump sum of debt, do not run up credit card debt. Once a person decides they want to file for bankruptcy, they should stop using credit cards because it could lead the court to presume the debtor participated in fraudulent activity. Also, some credit charges made within 3 months before filing may not be included in bankruptcy debts.
Failing to Consult with a Lawyer
Filing for bankruptcy can be done without the help of a lawyer, however, in most cases, it shouldn’t be done without one. Filing for bankruptcy can be somewhat of a complicated process and an attorney can help explain each step. If a person does not consult an attorney, they could cause trouble for themselves if they make any mistakes pertaining to the filing.
An attorney can also help decide if bankruptcy should even be filed. In some cases, bankruptcy is not the correct route depending on the circumstances. An attorney can explain each type of bankruptcy, Chapter 7, 11, and 13, and advise which one is best for the given situation. Each type of bankruptcy is different; they all have their pros and cons. Some allow most debt to be discharged and some don’t. Some are best when filing bankruptcy on a business, while some are best for medical debt.
What Can I Do?
Filing for bankruptcy is a great way to relieve yourself of financial stress. However, falsifying your assets, running up credit card debt, and not consulting an attorney can cause more harm to you when filing for bankruptcy. It is important to consult an attorney before filing for bankruptcy so they can advise you on what you should – and shouldn’t – do before filing.
Filing for bankruptcy can be complicated and frustrating to do by yourself, so contact an attorney if you are thinking about taking this step. At Rosenblum Law, an experienced bankruptcy attorney will help guide you through the process from start to finish. Contact us today for an initial consultation.
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How to Cite Rosenblum Law’s Article
Scott Glatstian (Oct 13, 2022). 4 Bad Reasons to Delay Filing for Bankruptcy. Rosenblum Law Firm, https://rosenblumlaw.com/bad-reasons-to-delay-bankruptcy/
Scott Glatstian "4 Bad Reasons to Delay Filing for Bankruptcy". Rosenblum Law Firm, Oct 13, 2022. https://rosenblumlaw.com/bad-reasons-to-delay-bankruptcy/