What not to do When Filing Bankruptcy
If you are thinking about filing Chapter 7 or Chapter 13 bankruptcy in Georgia, you should consult with a bankruptcy attorney to discuss your specific financial circumstances. However, there are certain things that all debtors should be cautious about doing before filing bankruptcy to avoid having any issues in their case.
1. Do not transfer or sell property before filing bankruptcy. This is not a hard and fast rule, but exists to prevent fraudulent transfers of property before filing bankruptcy.
Insider Transfers: Transfers to family members or business partners are considered insider transfers and could be subject to reversal if you file bankruptcy shortly thereafter. An example of fraudulent insider transfer could be transferring ownership of your house (that you own outright) to your mom for $2.00 a few months before filing bankruptcy.
Court-Ordered Transfers: Often, people who have just been divorced face financial problems and file bankruptcy. The good news is that most transfers of property or division of property pursuant to a court order from a divorce are not considered fraud.
Transfers in Due Course of Business: Normally, transfers or sales done at an arms-length transaction with third party buyers at fair market value are not considered fraudulent transfers and are not generally prohibited before bankruptcy. For example, if you sold a car on craigslist for NADA value and filed bankruptcy, that act should not be scrutinized by a bankruptcy trustee or subject to a legitimate claim for fraudulent transfer.
2. Do not make major purchases of luxury items. Charging luxury items totaling more than $600 within 90 days is considered fraud pursuant to the bankruptcy law. Thus, you should not charge a big trip to Hawaii on a credit card shortly before you file bankruptcy! Even if you made big purchases more than 90 days before filing bankruptcy, you’ll want to be careful to make sure you have the ability to pay those charges and intend to do so, or the creditor can still object to the dischargeability of that debt.
3. Do not take cash advances. Cash advances or balance transfers of more than $875 within 70 days before filing Chapter 7 or Chapter 13 bankruptcy are considered fraud under federal and Georgia bankruptcy law. So, if you receive one of those credit card checks in the mail and you cannot afford to pay it back, then do not take the cash advance!
4. Do not liquidate your retirement. There is no law that prohibits you from liquidating your retirement before you file bankruptcy, but you do not want to have large lump sums of cash sitting in your regular bank account before you file bankruptcy, especially if you are thinking about filing a Chapter 7 bankruptcy case. Georgia exemption laws allow debtors to exempt most retirement accounts at 100% vs. the maximum $5,600.00 (if you don’t use your entire homestead exemption) exemption for cash or any other liquidable assets. Further, the retirement liquidation is considered income for the purpose of conducting the “means test” or the income test required in both Chapter 7 and Chapter 13 cases.
5. Do not make large payments to any one creditor. Any one large payment (more than $600.00) to an unsecured creditor or a family member or business partner may be considered a “preferential” payment in bankruptcy. One important concept of bankruptcy is that all creditors should be treated fairly. Big payments to one creditor (unsecured) are considered unfair and can be reversed, and are subject to even more scrutiny if the creditor is related to you or is your business partner.
6. Do not liquidate large sums of money. If you have a lot of money or stocks or other assets sitting in the bank before you file bankruptcy and liquidate them, it can be considered fraud. If you have more money than you can exempt in bankruptcy, the better thing to do is to spend your savings or money on everyday, necessary and reasonable expenses over time before you file bankruptcy.
7. Do not finance a new car. Financing a new car before filing bankruptcy is not strictly prohibited. However, if you are looking to file a Chapter 7 and the car creditor fails to record the interest in the vehicle immediately and then you file Chapter 7, the bankruptcy trustee may take your car, arguing that you own it outright!
This is not an exhaustive list of actions that you should not take before filing bankruptcy, and if you are considering filing bankruptcy in Atlanta, you should definitely consult with a bankruptcy attorney to figure out what your options are and how to approach a bankruptcy filing. Call 404.585.0040 for a complimentary consultation with an Atlanta bankruptcy attorney.