Just jumping into bankruptcy without preparing ahead of time can deprive you of many of the benefits that the process has to offer. There are also certain actions that must be approached cautiously so you don’t harm your chances of getting your debts discharged or cause the court to interpret certain debt as fraudulent.
While every situation is different, there are several types of conduct that should largely be avoided or at least should not be undertaken without the advice of an experienced bankruptcy attorney:
- Making large luxury purchases — If you make large luxury purchases, take out cash advances or run up credit card bills shortly before filing for bankruptcy, those debts may not be dischargeable. Therefore, while purchasing items before bankruptcy to fill out your exempt property amounts may seem like a good idea, it can very easily backfire.
- Converting unsecured debt to secured debt — Reconsolidating high-interest unsecured debt as lower-interest secured debt can sometimes be an effective debt mitigation strategy. However, secured debt is usually not dischargeable, so doing this before filing for bankruptcy can significantly compromise your position.
- Forum shopping — Many states have their own bankruptcy property exemptions, and some are much more favorable to debtors than others. This has led some people to relocate to new states just prior to filing for bankruptcy to gain the benefit of more favorable exemptions. Section 522 of the bankruptcy code heads this off by requiring a debtor to be domiciled in a state at least two years before taking advantage of that state’s exemptions.
- Giving away property — Bankruptcy petitioners must disclose gifts and other transfers made prior to bankruptcy. If the trustee believes any gifts or transfers were fraudulent or made after you become insolvent, that property may be drawn back into the bankruptcy estate.
Bankruptcy is not about gaming the system. It is about getting the best possible result within the law. Our bankruptcy attorneys can help you prepare for bankruptcy and put you in a position to get the most out of the process.