If you are considering filing a Chapter 7 or Chapter 13 case, it is essential to understand that there are a few actions you should avoid in order to ensure that your case goes smoothly. Below are a few of the most common mistakes made by debtors that you will want to avoid:
Continuing to make charges on credit cards
In the months leading up to your bankruptcy filing, you should stop making charges on your credit cards. Any charges that are deemed to be for “luxury goods or services” on your credit card that totals in excess of $600 within the ninety (90) days prior to your case being filed, will be assumed to be non-dischargeable. A luxury good or service may be anything that is not reasonably required for the maintenance of your household. It is important to also understand that the $600 amount is not for a single charge to your credit card that exceeds $600, but the total amount of your charges incurred within the 90 day time limit. As a result, it is very important for you to cease all use of your credit cards as you prepare for your bankruptcy filing.
Repaying family members
If you have borrowed money from a relative, you may want to pay them back before you file for debt relief. However, this can cause trouble in your case. All debtors are required to disclose any payments in excess of $600 that have been paid to any creditors (including friends and family) within the six (6) months prior to the filing. The court will look back at payments made within the one (1) year prior to the filing for payments made to “insiders” such as your relatives. If you have repaid a debt to an insider, it will be deemed a “preferential payment.” In other words, you preferred one of your creditors over your other creditors, which is prohibited by bankruptcy law. If there is a preferential payment, the trustee will demand that your relative refund the money back to the trustee for the benefit of your bankruptcy estate. Failure by your loved one to refund the money could result in the trustee filing a lawsuit against him or her to recoup the funds.
It is common for people to think they can protect their assets from being included in the bankruptcy filing by transferring them into another person’s name. However, the trustee will conduct an investigation for all transfers of property (which includes sales and gifts) that the debtor made within the two (2) years prior to the bankruptcy filing. Thus, it is essential that you discuss with your lawyer all assets that you want to keep in order to determine if they are protected by an exemption under the law.
If you are interested in learning more about how a bankruptcy filing will impact your debt, contact Faro Crowder, PA to schedule an appointment.