When you are overwhelmed, and in debt, you may have tried other ways to get financial relief before you realized that bankruptcy is your best option. Most people don't realize that there are some things that you should avoid before you file your bankruptcy paperwork with the court. There are specific actions that the court may consider fraudulent, or it could deny the action or drop your case entirely.
Selling or Giving Away Property
Giving away expensive items before you file for bankruptcy sounds like a way to avoid them being seized, but it can cause you problems. Another avenue people take is to sell the item for far less than the value and then repurchase it after your bankruptcy so it won't show up in their bankruptcy estate. If the bankruptcy court discovers any of these tactics, your bankruptcy discharge will be denied, or you could face criminal charges for fraud.
Buying Big Ticket Items Before You File
Using your credit card to buy expensive items just before you file is also a red flag for the courts.
You may believe that since your debt will be eliminated, you can purchase that high dollar item that you usually wouldn't be able to afford and expect it to be eliminated in bankruptcy. The bankruptcy law was enacted to prevent this type of behavior. Bankruptcy law is supposed to be fair to the consumer and the creditors. The court will look at your debt in the last six months before filing bankruptcy to see if any recent excessive amounts of purchases were made. The judge might refuse to discharge those debts if the items were not a necessity.
Taking out a Second Mortgage
A second mortgage will not help you remove your debts; in most cases, it will only add another bill to your already burdened finances. It doesn't make sense to take out a second mortgage to pay your unsecured debt like medical or credit cards when you could have eliminated that debt in bankruptcy. The equity in your home is usually protected through the exemptions allowed during bankruptcy, while mortgage debt is not allowed to be discharged under the bankruptcy laws. If you have mortgage debt, you can file Chapter 13 and make a court-approved repayment plan for 3 to 5 years.
Withdrawing Retirement Funds
Withdrawing funds from your retirement accounts to attempt to get current on your debts is not a sound financial plan. Your retirement funds are usually protected in bankruptcy and cannot be seized to repay your creditors. If you are at an age where you can safely work enough years to add back to the retirement account, you may be fine. Taking money from your retirement accounts could jeopardize your future if you can no longer work.
If you are overwhelmed in debt, contact a Folsom bankruptcy attorney to find out how you can get financial relief.