Folks all over the Sacramento region, from Woodland to El Dorado Hills, have fallen into unfortunate situations with debt. Bankruptcy is often the answer to fixing those problems and getting a financial fresh start. But the things that happen during the bankruptcy and afterwards are just a small part of the story of a successful fresh start. A successful bankruptcy starts long before the bankruptcy petition is even filed.

Avoid Making Large or Unusual Payments to Creditors

It’s an important point that a debtor should not pay certain debts prior to filing bankruptcy. It seems like the debtor should make the payments if at all possible. But the truth is that this can cause problems down the road. Large payments to single creditors, or paying of a whole debt, can be considered “preferential transfers,” which means that one creditor has had an unfair benefit over other creditors. This includes payments to family members or friends. The court could potentially sue the creditor or family member for the money paid. Note that this doesn’t mean that a debtor should stop making basic bill payments like utilities, car payments, and rent.

Do Not Incur New Debt

If a debtor plans on filing bankruptcy, it is important not to incur new debt unless absolutely necessary. If you are in a deep debt hole, the first step is to stop digging in deeper. The consequences could be dire. For example, the new creditor could claim that the debtor took out the loan without any intent to ever pay it back. In a bankruptcy situation, this could be considered fraud and could result in a variety of legal problems, included that the debt may not be discharged in bankruptcy. This means that the debtor still owes the debt even though she filed bankruptcy.

Do Not Provide Inaccurate Information

One of the fundamental requirements of filing bankruptcy is to be completely truthful and disclose everything to your attorney. Any debt, assets, accounts, or other financial information must be provided in the bankruptcy documents. Any attempt to withhold or hide this information could be construed as fraud. It could even lead to criminal charges.

Do Not Use Retirement Funds to Pay Creditors

There are procedures in place for folks to withdraw funds from retirement accounts. But this can have serious consequences at tax time. Or, obviously, when it comes time to retire. Many retirement funds are exempt from being taken from the bankruptcy filer, so it often behooves debtors to file bankruptcy instead of liquidating those hard-earned retirement funds.

Clearly, many of these situations are based on the assumption that the debtor is in a position to file bankruptcy soon. Time is of the utmost importance. The windows for various transactions are different, from 90 days to five years. It is certainly not a good idea to try to out-maneuver the court and find sneaky loopholes. In any of these situations, the advice of a good bankruptcy lawyer is an invaluable resource and could mean the difference between a successful bankruptcy and failed one.