4 Ways to Protect Yourself During the Bankruptcy Process

Most bankruptcies go very smoothly.

Yet borrowers can and do make significant mistakes that threaten their cases. Sometimes, those mistakes even leave them open to criminal charges. 

Here are four ways to protect yourself during your bankruptcy case. 

#1) Discuss Big Financial Moves 

In some ways, bankruptcy is all about timing. If you transferred certain property the same year you want to file for bankruptcy, you need to discuss the transfer with your bankruptcy attorney. 

Pay special attention to the following:

  • Debts that you paid to family members or friends
  • Property transferred for less than its value
  • What you used sale money for

You must report all transactions for two years before filing. Some transactions could be acceptable. For example, selling property to pay for necessities is often okay. 

Others could create the impression that you’re attempting to commit bankruptcy fraud.  For example, transferring your car into your nephew’s name for $1 could look like you’re trying to keep your vehicle out of bankruptcy.

Remember: exemptions can save property like cars, homes, retirement accounts, and more. Don’t start moving property around because you feel fearful. 

#2) Check Your Recent Purchases

If you made certain purchases before filing for bankruptcy, the judge could rule that the debt is fraudulent. Namely, judges are looking for luxury items or services above $800 within 90 days of filing for bankruptcy.

In other words, you can charge groceries to your credit card and file bankruptcy 30 days later, but if you buy luxury goods, the judge may presume that you never intended to pay off the debt. The credit card company may challenge whether or not this debt should be discharged. 

You’ll have to pay the debt if they win, even if all the other debts are discharged. 

#3) Be Honest About Your Finances 

When you file for bankruptcy, you must file a Schedule of Assets and Liabilities. This form allows you to provide the courts with detailed information about your assets and debts. 

You must also provide a Statement of Financial Affairs, which includes information about your income, payments to creditors, and other financial transactions.

You must include tax returns.

You must pass a means test.

It is vital to include every last detail of your finances in these documents. If you don’t, and the omission gets uncovered, your case could be dismissed. Worse, you could face criminal charges for bankruptcy fraud. 

#4) Read Your Statement of Financial Affairs

Some attorneys prepare the Statement of Financial Affairs for their clients after reviewing their bills, bank statements, tax returns, and other financial documents. It’s a bad idea to simply sign off on that document without reading it through. 

In the 2004 bankruptcy case In re Geller, borrowers Esther Geller and Michael Geller filed a joint Chapter 7 petition. Both spouses brought their attorneys documentation that he’d need to prepare their Statements of Financial Affairs. 

Spouse Esther Geller signed the documents while working and didn’t read the Statement. She never got around to reading them. Michael Geller said he “perused” them later. They had certified under oath that they’d read the schedules. 

Those statements had a lot of false and missing information. 

The borrowers claimed they’d relied on their attorney to entirely and accurately prepare their schedules. The courts ruled that “Reliance on attorney advice absolves a debtor of fraudulent intent only when that reliance is reasonable and the advice given is informed advice.” The court did not believe the attorney was fully informed of the missing information. The court then denied the couple’s discharge.

It’s your responsibility to know what’s in your documentation. Courts will not take “I didn’t know” as an excuse. Ask yourself if anything needs to be added or corrected, if you forgot to tell your attorney anything, or if anything got missed. 

Get Help Today 

Bankruptcy is far more complicated than most people realize, especially for borrowers with complex asset profiles. 

Don’t try to file without speaking to an attorney, and be honest with that attorney. Honesty allows your lawyer to craft a strategy for your unique situation.

Want a free consultation? Contact Haysom Law today.

See also: 

When May a Creditor Request a Lift of an Automatic Stay in New York? 

How Are Debts to Friends and Family Members Handled During Bankruptcy? 

How to Prepare for Your Free Bankruptcy Consultation


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