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Oliva Law Dec. 14, 2021

Bankruptcy is the best solution for many people searching for a way to escape crushing financial debt. Making the decision to file for Chapter 7 or Chapter 13 bankruptcy is usually a difficult one because, as with any major decision, there are numerous pros and cons you need to weigh.

You may also be making decisions you think might help you avoid filing, retain more assets if you do file, and acquire more debt when you know you can reduce or eliminate it in bankruptcy. Many of those decisions can get you into legal trouble.

At Oliva Law, we don’t just help clients know what to expect during bankruptcy. We help them understand what not to do before filing for bankruptcy. If you live in McAllen, Brownsville, Corpus Christi, or Harlingen, Texas, or anywhere in the Rio Grande Valley, and you are considering bankruptcy or have recently filed, there are a lot of things you should know. Let us help by telling you what not to do before you file.

Don’t use your retirement account to pay off debt.

Unlike many other assets, retirement accounts are protected in bankruptcy. That means it is not a good idea to use those funds to pay debts that will be eliminated or restructured in bankruptcy. Hang on to those accounts for your future.

Don’t take on new debt.

Many people are tempted to run up their debt in the time leading up to bankruptcy. You may be tempted to max out that last credit card to book a weekend cruise or get a cash advance to spend before filing, knowing that credit card debt will be discharged in bankruptcy. Resist the temptation because doing so within 90 days of filing for bankruptcy may result in fraud accusations and prohibit you from filing.

This does not mean you can’t use your credit card to buy groceries or fill up your gas tank to get to work in those 90 days. Those are necessary expenses. Avoid debt considered “luxury debt,” or the creditor can file an opposing proceeding against you alleging fraud.

Don’t move or give away assets.

It may also be tempting to try to hide or move assets so they are not liquidated in the bankruptcy process. For example, you might give a close friend an expensive piece of art as a gift to hold on to until they can return it to you in the future. If you do, you could be barred from filing for bankruptcy and even face criminal fraud charges.

If you sell the art to pay debts and not to keep a hidden stash of cash, that will be acceptable. However, you will need to keep detailed records of such transactions documenting the sale proceeds and the subsequent payments made on your debt.

Don’t skip filing your taxes.

Of course, there are penalties if you are required by law to file income taxes and fail to do so. There are also repercussions if you plan to file for Chapter 7 bankruptcy, so don’t skip filing them in a timely manner.

Determining your eligibility for the Chapter 7 bankruptcy income means test is based on your income tax returns. If you do not have that documentation, you might still have the option of filing for Chapter 13 bankruptcy; however, if you don’t earn enough income for the repayment plan, you will be unable to file for it as well.

Don’t misrepresent yourself.

When you complete all the forms and documentation required to file for bankruptcy, you will sign them, testifying that you have provided accurate, honest, and full disclosure. It stands to reason that if you sign knowing you have left out some information or provided false information, you are subject to criminal charges and penalties, just as you would be if you swore in court to tell the truth, the whole truth, and nothing but the truth, then didn’t.

Penalties for conviction include a prison sentence of up to 20 years and fines up to $250,000. That should be enough of a deterrence to make sure you are completely honest in your bankruptcy disclosures.

Don’t selectively pay some debts and not others.

Since you know your debt will be discharged or restructured in bankruptcy, you might want to repay that friend or family member who loaned you several thousand dollars to help out when you needed it instead of making the minimum payments on your credit cards. Selectively paying debt is offering preferential treatment to one creditor over another, and that can be reversed in bankruptcy. Those to whom you selected to repay debt can be forced to return the money so they are treated the same as every other creditor subject to your bankruptcy.

Don’t file for bankruptcy without legal guidance.

The dos and don’ts involved with bankruptcy can be unclear and confusing. Missteps, whether intentional or accidental, can bar you from filing for financial relief or worse, result in criminal charges and penalties. Moreover, a bankruptcy attorney can help you understand all the pros and cons of bankruptcy and help you determine which chapter will give you the best financial restart.

Don’t risk the opportunity for relief or freedom. Consult an experienced bankruptcy attorney from the time you begin considering bankruptcy until your case is closed. That should be the easiest decision you ever have to make.

Let Oliva Law Help

At Oliva Law, we have helped hundreds of people explore their bankruptcy options and guided them through the process from start to finish. Every case is different, every client is different, and that’s how we treat every single one of them.

If you are considering bankruptcy, get started by learning more about it. We have offices in McAllen, Corpus Christi, Harlingen, and Brownsville, Texas. Call us today.