It is very rare, but if someone does something improper before the filing of their bankruptcy case, it could cause a problem with their case being approved. For very serious and intentional violations, someone could be charged with bankruptcy fraud. In order to avoid bankruptcy fraud, it’s important to deal with a licensed attorney and to be completely upfront and honest in your bankruptcy filing to avoid certain kinds of actions before filing for bankruptcy.
Filing for Bankruptcy? Don’t Transfer Property
When you file for bankruptcy, you will be required to list all of your assets and debts. Any attempt to hide or conceal assets can lead to criminal charges of bankruptcy fraud. In order to avoid allegations of attempting to hide assets, don’t transfer property like real estate, cars, boats, or other valuable items to other family members. Doing so may lead the bankruptcy trustee to believe you’re attempting to conceal assets that could otherwise be used to pay off your creditors. If the bankruptcy trustee believes it is a fraudulent transfer, they can in turn go after the person you transferred the property to in order to seize it or recover the cash value of it.
Credit Cards – Don’t Max Them Out
When people filing for Chapter 7 bankruptcy learn that their credit card debt will be wiped out, some make the unfortunate decision to run up credit card bills under the mistaken assumption any new debt will be discharged anyway. Under the law, however, luxury goods over $550 cannot be discharged if bought within 90 days of filing for bankruptcy.
Secondly, if your credit card company sees you’ve gone on a spending spree a few months before declaring bankruptcy, they’re much more likely to attend your 341 meeting and challenge your bankruptcy. If the court is convinced you ran up the charges on purpose knowing you’d claim them in your bankruptcy, you could face bankruptcy fraud allegations in addition to having your bankruptcy denied.
Don’t Pay Back Relatives or Friends Before Filing for Bankruptcy
You’ve borrowed money from friends and family and now you’d like to pay them back before you file for bankruptcy. As noble as your intentions may be, don’t do it: the bankruptcy court may consider these payments “insider” or “preferential” payments if made within one year before your bankruptcy filing. As a result, you are required to disclose them in your bankruptcy petition. The court views these payments as money that could have gone to your creditors and will take action to recover the money from the people you paid. Additionally, if you do not disclose these payments, you could face bankruptcy fraud allegations as well.