Knowing what you should and shouldn't do when filing for bankruptcy can be difficult. That’s why it’s always in your best interest to consult a reputable Twin Cities bankruptcy lawyer to help you go about the filing process the right way.
Not only will a Minnesota bankruptcy attorney ensure you’re following the correct process, but legal counsel will also make sure you do not engage in certain actions that could negatively affect the outcome of your case.
What should you avoid when filing for Chapter 7 or Chapter 13 bankruptcy? Read on to find out.
1. Transferring Property or Money
One of the most common mistakes people make during the initial stages of filing bankruptcy is attempting to move money or assets, so they’re not considered in the case. While it may seem like a good idea at the time, there are legal implications that could work against you should you choose to transfer any of your assets to other people or accounts.
For example, the court could see your maneuver as attempting to conceal your assets so you can retain them after your bankruptcy case is discharged. Keep in mind, having financial assets does not mean you can’t file for bankruptcy — you don’t have to be completely penniless to file.
If you’re filing for Chapter 7 and are worried about losing property or other assets, you should know there are several exemptions you’ll likely qualify for that will allow you to retain most, if not all, of your assets. Rather than transferring assets to protect them, work with an experienced bankruptcy attorney to have the best odds of protecting your money and property.
Check out Preparing for Chapter 7 Bankruptcy: How to Manage Your Finances Before You File to learn more.
2. Paying Off Some Creditors, While Ignoring Others
Filing for bankruptcy allows you to demonstrate that you have more debt than you can pay off. If you start whittling down your debt to preferred creditors before the paperwork even goes through, it could weaken your case in the courts.
Preferential debt payments to certain creditors could also lead to a clawback lawsuit in which the bankruptcy trustee sues the creditor for preferential treatment. What exactly is considered a preferential transfer? Here are the rules on these payments:
● Transfers and/or payments made within 90 days of filing. Transferring money or property worth more than $600 to any of your creditors while you’re insolvent during the 90 days preceding your bankruptcy case. If a $600+ payment results in a specific creditor getting more than they would have received through your bankruptcy case, that payment will be considered a preferential transfer.
● Payments made to insiders. Paying down debt to business partners, family, or friends in the year preceding your bankruptcy case is also considered a preferential transfer, regardless of whether that transfer involves money, property, or a combination of both.
If you want your case to be successful (who doesn’t?), keep making your payments as usual and balance them as best you can until your bankruptcy filing is complete. Once you file, an automatic stay will go into effect, which prevents your creditors from taking any further collection action against you until your case is discharged.
For more information about the creditors involved in your bankruptcy case, check out Secured vs. Unsecured Creditors: What’s the Difference?
3. Depositing Additional Funds into Your Bank Account
When you file for bankruptcy, you’ll need to complete a means test to determine which type of bankruptcy you’re eligible to file for. To complete this test, you must be able to trace a routine standard source of income from your primary job or jobs.
If you deposit additional funds from other sources outside of your work income, the court may consider the income questionable. If you own a business, we strongly recommend that you keep your business accounts separate from your personal accounts.
4. Incurring New Debt
If you rack up new debt in the 70-90 days before you file for bankruptcy you could run into problems when you file.
Your creditor could potentially argue that you took out the loan with no intention of paying it back because the time at which you incurred the new debt is too close to the date of your bankruptcy filing. If this situation plays out, your creditor could accuse you of fraud, and you may not be able to have the debt discharged.
Ron Lundquist Attorney at Law Can Help You With Your Minnesota Bankruptcy Case
If you are considering filing a Chapter 7 or Chapter 13 bankruptcy, call the law offices of Ron Lundquist, Attorney at Law. I specialize in personal bankruptcy services, business bankruptcy, and foreclosure services for residents throughout the Minneapolis/St. Paul metro area. I can help you navigate through your bankruptcy while giving you sound legal advice so that your case goes as smoothly.
To learn more, call my office at 651-454-0007, request a free consultation online, or send us a message with your questions or concerns, and we’ll reach out promptly with additional information.