If you’re considering filing for Chapter 7 bankruptcy, it’s important to understand the regulations around spending and other financial transactions in the months prior to filing. Activity that can be viewed as trying to defraud the bankruptcy court can derail your plans to get out from under overwhelming debt.
That’s one reason why it’s wise to get some legal guidance prior to filing for Chapter 7. Otherwise, what might seem like a perfectly innocent and valid decision could leave you worse off than ever and with the option of bankruptcy no longer available.
Unnecessary spending
While this might seem obvious, it isn’t to everyone. Some people decide they’re going to use whatever credit they have left on their credit cards to go on a spending spree or get the next season’s clothes shopping done before they lose their cards as a result of the bankruptcy process. This will likely be viewed as fraud unless you can account for what you purchased and why it was necessary. The same goes for any kind of large purchase.
Remember that intentionally accumulating unnecessary debt you can’t afford to pay off before filing is considered bankruptcy fraud. Blowing through your savings won’t be viewed much better.
Transferring property
Some people try to avoid losing assets in bankruptcy by “giving” them to a friend or relative. All recent transfers need to be fully and truthfully disclosed in the bankruptcy filing. Those filing for bankruptcy often have to answer questions from a judge under oath. If someone is found to be hiding assets, that too is bankruptcy fraud.
Repaying personal loans
If a family member or friend loaned you money, you may not want them to have to get in line with all of your other creditors to seek repayment. However, by repaying them yourself before filing for bankruptcy, you’re interfering with the process.
By fully understanding what’s involved in Chapter 7 bankruptcy before you file, you can make more informed decisions about your rights and options. There are a lot of misconceptions around bankruptcy. The more you know about it and the more seriously you take it, the greater your chances are of getting through it successfully.