3 Things To Avoid Doing When Using Chapter 7 Bankruptcy

18 May 2020
 Categories: Law, Blog


Are your debts getting out of control and you need to use Chapter 7 bankruptcy? If so, it will help to know what things you should avoid doing to help the process go smoothly. 

Do Not Selectively Pay Back Debts

A common concern people have when using bankruptcy is that some of the people they owe money to are not going to get paid. This can cause people to start selectively paying back their debts, especially if they owe money to family and friends that they do not want to hurt financially. This is a big mistake that can be discovered during the bankruptcy process that you may not be aware of. If the bankruptcy court finds out that you have done this prior to filing for bankruptcy, they could issue a clawback where your preferred creditor has to give that money back. If the creditor does not have the money, this can put a hardship on them to come up with the money. A bankruptcy court will look at preferential payments that were made up to a year before you filed for bankruptcy, so be very careful about making those payments.

Do Not Give Away Your Assets

If you have certain assets that you are worried about losing during a bankruptcy, know that you cannot transfer assets to another person in order to find them. This often happens if people have a home, vehicle, or another expensive asset that they want to avoid losing. The thought process is that you can transfer it to another person for the bankruptcy and then transfer it back once the bankruptcy is complete.

Know that the process of transferring assets to avoid having them liquidated during bankruptcy is illegal. There can be serious consequences for doing so. A bankruptcy court will go back as far as two years to look for any transferred assets that could fall under this category. Anything that you are giving away must be sold for a fair value to avoid being accused of this behavior.

Do Not Use Credit When Planning To File Bankruptcy

Once you decide to file for bankruptcy, be aware that any of your purchases will be scrutinized by a bankruptcy court. If you make a luxury item purchase with the intention to have the debt discharged, you could run into an issue where the creditor makes an objection and the debt is not discharged. Once you decide to file for bankruptcy, it is best to not use your credit card to avoid this accusation.