Filing for bankruptcy is a serious financial decision. It can offer relief, but it also carries long-term consequences. Whether you’re considering Chapter 13 or Chapter 7 bankruptcy, your pre-filing actions and inactions can impact your outcome.
Understanding what potentially beneficial steps you can take before filing can help you find success on your quest for financial recovery. At the same time, it is equally smart to avoid certain actions.
Activities to avoid
Avoid transferring property to friends or family. While it may seem like a way to protect assets, such transfers can be reversed by the bankruptcy trustee and may be viewed as fraudulent. Similarly, don’t use credit cards or take on new debt as the court may determine that they were incurred in bad faith.
Don’t ignore your financial records. Failing to provide full financial disclosure can lead to dismissal of your case or even legal penalties. Additionally, resist the urge to repay friends and family members ahead of other creditors – preferential debt payments can be clawed back.
Steps to take before you file
Gather complete documentation of your income, expenses, assets and debts, such as pay stubs, tax returns, bank statements and loan agreements.
Review your budget to determine whether you qualify for Chapter 7 or if Chapter 13’s repayment plan is more appropriate. Remember to set aside time to complete the required credit counseling, as the certificate must be filed with your bankruptcy petition.
Talk to a legal representative to evaluate your options and help ensure compliance with exemption laws. With guidance, you may be able to protect your home, vehicle and personal property, depending on available exemptions.