Don't Do These 7 Things Before Filing for Bankruptcy

By Tracy L. Hirsch

Below is a list of common mistakes that clients make before filing for bankruptcy in Kentucky. These mistakes can have a detrimental affect on a consumer’s ability to obtain relief under the bankruptcy code.

If you are anticipating filing a bankruptcy petition, please review the following list carefully. As always, if you are unsure as to whether an action will affect your bankruptcy filing, seek the advice of a legal professional.

1.) Don’t transfer any property or assets.

Oftentimes, an individual who is contemplating filing for bankruptcy in Kentucky, fears that they will lose assets to the bankruptcy estate. More often than not, this is not the case. In fact, transferring an asset out of your name before the filing of a bankruptcy can actually cause you to lose an asset that would have otherwise been protected.

This type of transfer can be construed as fraud, allowing the trustee to take the property from the individual it was transferred to and sell it for the benefit of your creditors.

2.) Don’t pay off debts to relatives.

Many debtors owe credit card companies, as well as family members. While it is understandable that most individuals do not want to file for bankruptcy against their relatives, paying back a debt to a relative before the filing of a bankruptcy petition could be bad news.

Repaying debts to relatives before filing bankruptcy is considered a “preferential payment.” This gives the bankruptcy trustee the right to recover funds from the relative that you paid, and to distribute the funds evenly among all of your creditors.

While filing for bankruptcy can protect your from your creditors in most situations, there are certain actions that you must avoid in order to obtain that legal protection.

3.) Don’t tap into your retirement accounts.

Most qualified retirement funds are protected assets in a bankruptcy filing. Cashing out or withdrawing funds from these types of accounts not only puts your retirement funds at risk, but it also has the potential for creating tax liabilities that will not be eliminated in bankruptcy.

4.) Don’t incur more debt.

Once you have made the decision to file for bankruptcy in Kentucky, it is improper to incur additional debt that you do not have the intention or ability to repay.

Creditors may object to those charges and may be able to have them excluded from your bankruptcy discharge. So don’t max out your credit cards or take out a car loan before filing.

5.) Don’t use the equity in your home.
Many people think that if they have any equity in their home when they file for bankruptcy, then they will lose their home. This is not the case. All states have exemptions that cover at least some of your equity.
Kentucky uses federal exemptions which allow each debtor to protect $20,200.00 in equity (that’s $40,400.00 for jointly owned property). In Indiana, each debtor can have up to $15,000.00 of equity and still protect his or her home.
6.) Don’t get married before consulting with a bankruptcy attorney. 
If you are contemplating marriage before filing for bankruptcy, it’s a good idea to speak to a Louisville bankruptcy attorney prior to your marriage.
In some cases, it’s better to get married and then file for bankruptcy if you are both in debt and need to file. However, the opposite can be true. If your soon-to-be spouse makes a significant amount of money, you may not qualify for certain chapters of bankruptcy if you get married first.

7.) Don’t omit certain types of information on your bankruptcy petition.

Your attorney can only provide proper legal advice if you provide him or her with truthful and accurate information. Failing to disclose income, expenses, assets, debts, or any questionable actions for transfers could prove to be a costly mistake.

Failing to disclose pertinent information when filing for bankruptcy could result in loss of assets, denial of your discharge, and even fines or imprisonment.

If you’re looking for an experienced bankruptcy lawyer who can guide you through this process, call me or text me at (502) 425-2593. I’ll set up a free consultation to provide you with options and advice on whether or not a bankruptcy filing is right for you.

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