A bankruptcy can help individuals struggling with their finances by discharging debts, preserving assets, and providing a fresh start. There are steps that can be taken to increase the likelihood of a smoother court process. Based on extensive experience, our West Palm Beach bankruptcy attorneys have detailed common mistakes to avoid when filing.
Repaying personal loans
Wanting to reimburse family or friends for personal loans is a very generous gesture. However, if repayment is made within one year of filing it will be considered “preferential transfers” under the Bankruptcy Code, which is frowned upon in court and may result in the assets being retrieved. In short, do not pay friends or family back any money you owe them.
Using Money from a 401K to repay debts
Well intended individuals will withdraw money from retirement accounts in an effort to reduce credit card debt. This costly mistake will lead to additional tax liability, which is usually unable to be dissolved in bankruptcy. Since retirement accounts are usually exempt in a bankruptcy, it does not make sense to use these funds in an attempt to pay back debts.
There is a misconception that transferring valuable assets, such as a house, to someone else’s name will prevent creditors from attempting to reclaim the debt. Transactions that are completed at a price that is below fair market value or within 4-6 years of filing for bankruptcy (depending on the state) are considered to be fraudulent and are likely to be undone by the bankruptcy trustee.
Acquiring additional significant amounts of credit
Under the Bankruptcy Code, credit card debt of non-essential items incurred within 90 days of filing will be non-dischargeable. Additionally, if a creditor is able to prove the charges were incurred under false pretenses, the debts will not be eligible for dismissal. It is not advisable to charge up creditor cards in the months leading up to a bankruptcy filing.
Delaying filing for bankruptcy
There are advantages to taking action to regain control of finances by filing for bankruptcy at the first sign of distress. The Consumer Bankruptcy Project recently reported that those who delay filing for two years or more possess half the median assets of those who took action earlier. An attorney will provide valuable insights and legal counsel in preparation for entering bankruptcy.
If you or a loved one have decided to file, contact the West Palm Beach bankruptcy attorneys at Kelley & Fulton, P.L. Identifying the opportune time to declare bankruptcy can be challenging for those facing significant debt. Our experienced team works with clients to explore all options and remedies to correct financial problems before pursuing bankruptcy. Contact us today for a free consultation.