Whether you plan to file for bankruptcy on behalf of yourself or your business, you may have the urge to “skirt the system,” so to speak. In other words, you may try to make the most of a dire situation by racking up new debt, maxing out credit cards, hiding assets or giving away property to friends and family members. Do not do any of this.
The bankruptcy courts are extremely thorough in their pre-discharge investigations. If your bankruptcy trustee discovers that you attempted to abuse the system in any way, the courts may dismiss your petition. Not only that, but they may press criminal charges, which could result in up to $500,000 in fines and up to five years in jail. To help you avoid such steep penalties, Debt.org details the top mistakes to avoid before filing for bankruptcy.
Racking up new debt
A common mistake among bankruptcy filers is assuming the bankruptcy courts will not discern between new debt and old debt. They do, and they do not like when debtors continue to charge expenses to their credit cards — or worse, take on new debt — after having filed for debt relief. If you attempt to use up your available credit before the bankruptcy is over, you will have to repay it in full, as the courts will generally not include any debt accrued within 90 days of filing. Moreover, your creditors may sue you for fraudulent borrowing if they can prove that you intended to file bankruptcy even as you continued to spend.
Lying about your assets
It is never a good idea to lie about your assets on a bankruptcy petition. Even though the process begins with self-reporting, a bankruptcy trustee will eventually access and pour through your financial records. If he or she discovers deception, the courts may — and probably will — dismiss your case. Not only will they dismiss your case but also, they may ban you from filing bankruptcy for those debts in the future.
Transferring property or gift assets
You may attempt to protect your assets and property by transferring big-ticket items to friends or family members, or by gifting said items away. Refrain from doing so. If and when the bankruptcy courts find out, they will make the recipients give the items back. The bankruptcy courts have strategies designed to help debtors keep their most cherished or important assets. Use only these techniques if you truly want to protect your property.
There are dozens of bankruptcy dos and don’ts. Instead of trying to keep track of all the rules yourself, consult with an attorney who is familiar with bankruptcy law and who can help you strategize legal ways to get out of debt without losing everything you own.