Bankruptcy gives people drowning in debt an opportunity for a financial fresh start. However, in order for your bankruptcy to be successful, you must follow certain rules and procedures. If you break a rule, whether it’s intentional or not, your bankruptcy may be denied. Here are several actions you shouldn’t do before declaring bankruptcy.
Creating New Debt
Some people make the mistake of racking up new debt on their credit cards before filing for bankruptcy. They may not think it’s a big deal because bankruptcy will just wipe their debt. However, new debt won’t get discharged in bankruptcy and may even land you in legal trouble. While going on a clothes shopping spree or taking a vacation may sound fun initially, it isn’t worth the consequences you will face.
Paying Off Loans
At first, it might not seem like a big deal to pay off loans before declaring bankruptcy. However, this is considered preferential debt payment and forbidden. For example, if you paid back a family member, the bankruptcy trustee will take back the funds.
Sometimes people may try to transfer their assets to family members’ names before filing for bankruptcy. This is another big mistake. If the court finds out that you moved assets, your bankruptcy case will get denied. You may even face criminal charges.
Failing to File Taxes
If you haven’t filed taxes for the two years before declaring bankruptcy, it can complicate your case. Your tax returns establish your current and past wages and asset holdings. If you don’t have tax returns to show, it can stop your bankruptcy from taking place.
Providing Inaccurate Information
When you file bankruptcy paperwork, you are obligated to provide accurate and detailed information about your assets, debts, income and expenses. If you forget to include certain information in the paperwork, your case could get dismissed. If you knowingly provide inaccurate information, such as many assets you have, you could be subject to criminal penalties.
Depleting Your Retirement Account
People who are in massive debt may panic and use their retirement funds to pay off their bills. This isn’t necessary and can do more harm than good. Bankruptcy may likely discharge the debt you’re trying to pay off with your retirement funds.