Common Pitfalls People Make before Seeking Protection
Seeking protection through a Chapter 7 or Chapter 13 bankruptcy can help you get a fresh financial start. That’s precisely why lawmakers put these laws in place, so that you won’t be permanently affected by the costs of uninsured medical care, the loss of a job or other circumstances beyond your control. It’s important, though, that you take the right steps, even before you file your petition, so that you get the most out of the bankruptcy laws, you protect as many of your assets as possible, and you don’t run afoul of the law. Here are some common blunders people often make in anticipation of bankruptcy.
Using Pension or Retirement Funds to Pay Off Creditors
In an effort to get creditors off your back, you may turn to your IRA, 401k or other retirement funds for the money to pay debts. Don’t do it! Your retirement funds won’t be a part of your bankruptcy estate. You will still have full access to those assets when your bankruptcy is over. Using those funds to pay off creditors is a bad decision.
Running Up New Debt Just before Bankruptcy
You may think that you can incur new debt and simply discharge it in a Chapter 7 proceeding. That won’t happen, unless the new obligations are for what are commonly referred to as “necessaries,” such as food, clothing or utilities. The debt tied to luxury items won’t typically be dischargeable in bankruptcy and you could face allegations of bankruptcy fraud.
Don’t Use the Limited Funds You Have to Pay Off Selected Creditors
Under the American bankruptcy laws, certain types of payments to creditors within a certain time period prior to your bankruptcy filing are considered “preferential.” Don’t pay off the personal loan from a friend or family member. The bankruptcy trustee has the right to file proceedings seeking the return of such payments.
Don’t Give Property Away
Don’t think that you can give valuable assets to a friend or family member or “sell” them to someone you know for less than fair market value, with the plan to recover the property when your bankruptcy is complete. Any disposal of property must be in an “arms-length” transaction and must be for fair market value. Otherwise, it may be considered a fraudulent transfer.
Contact Attorney Howard N. Sobel
At the office of Howard N. Sobel, we provide personal bankruptcy counsel to men and women throughout the state of New Jersey. Contact our office online or call us at 856-424-6400 to set up a free initial consultation. Evening and weekend appointments can be arranged upon request. We accept all major credit cards.
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