What Not to Do When Filing for Bankruptcy
Declaring bankruptcy is far more complicated than just entering a courthouse and filling out a few forms. This process requires much more preparation than the average person realizes, and what a person does not do can often be just as important as what he or she does do.
With the passage of the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) in 2005, there has been a greater emphasis on eliminating acts of fraud. Sadly, many people unknowingly violate bankruptcy laws through innocent actions, and this page is intended to help people who are considering bankruptcy avoid making some very costly mistakes.
Cincinnati Lawyer Discusses Common Bankruptcy Errors
Has concern about paying your bills taken over your daily life? Do you avoid answering the phone because you are afraid it might be a creditor on the other line? You can bring an end to these fears and give yourself a brand new start by filing Chapter 7 or Chapter 13 bankruptcy?
Our Cincinnati bankruptcy attorneys at Steiden Law Offices help clients all over the Queen City as well as communities in Northern Kentucky. We can provide a complete evaluation of your situation and discuss all of your financial options with you as soon as you call our firm at to take advantage of a completely free, no obligation consultation.
Northern Kentucky BAPCPA Information Center
- What happens if I lie or leave out information?
- Can I get in trouble for paying back someone I know before filing?
- Why shouldn’t I max out my credit card before declaring bankruptcy?
- Is it a bad idea to use my 401(k) to pay down certain debts?
- Am I required to disclose some money I think I’ll be coming into in a few months?
- Where can I find more information about bankruptcy fraud?
When you file bankruptcy, you need to be completely honest about absolutely everything with your lawyer. An attorney will always be able to determine the most beneficial way to handle every aspect of your bankruptcy case, but leaving out any asset or creditor—whether it is intentional or not—can have disastrous consequences later on.
You should be as exhaustive as possible in reporting all of your debt, as omission of any asset, creditors, or additional income could lead to any combination of the following:
- Case dismissal;
- Additional paperwork and fees;
- Discharge denial or forfeiture;
- Trustee may seize assets you planned on keeping; and/or
- Criminal charges.
Under 11 U.S. Code § 547, a debtor is prohibited from paying one creditor a larger amount than other creditors shortly before filing for bankruptcy. Such payments or any sale or transfer of assets to another party can be considered a preferential transfer, and the trustee may even file a “clawback” lawsuit to recover money that should have been evenly distributed among all creditors.
While most people generally wouldn’t feel very sorry for a creditor such as a bank being sued for these kinds of funds, nobody wants his or her parent, friend, or other family member being subject to such litigation after being repaid for a personal loan. Trustees will examine to see whether any such payments were made within 90 days for most creditors, but they will look back as far as one year for payments to “insiders” (friends or family members).
Some people mistakenly assume that there is no harm to adding to their existing debt when they know they are going to be filing for bankruptcy anyway. Nothing could be further from the truth.
Large cash advances or luxury items purchased within 90 days of a filing can lead to a denial of that debt being discharged. A creditor could successfully argue at your 341 meeting that you should be denied a discharge for the debt because you had no intention of paying it back. Particularly large amounts of recent purchases may even lead to criminal charges of fraud.
Whether it is intense pressure from creditors or just a mistaken belief that the benefits of paying down credit card debt take precedence, several people will attempt to liquidate their 401(k) or other individual retirement accounts (IRAs) before filing bankruptcy. There a multitude of consequences to doing this though.
First, you will have to pay taxes on this transaction—twice. There is the penalty of taking the money out early, and then there is the additional earned income that needs to be reported on your annual tax return.
Secondly, BAPCPA exempts most retirement plan assets from a debtor's bankruptcy estate, typically up to $1 million for most IRA plans. In order to ensure your retirement plan is deemed to be qualified under BAPCPA, you should obtain a favorable determination letter from the Internal Revenue Service (IRS).
If you know that you will be receiving more money in the near future, you should not file bankruptcy without disclosing such upcoming funds. This can also be deemed fraud for perjury or non-disclosure.
A few examples of the types of money that people occasionally come into within one year after filing for bankruptcy include:
- Bonuses at work
- Income tax refunds
- Lawsuit settlements
- Repayments from personal loans
Identifying Fraud, Abuse, and Error in Personal Bankruptcy Filings — This U.S. Trustee Program (USTP) guide provides an overview of the bankruptcy process, with chapters specifically dedicated to identifying debtor fraud, abuse, or error and observations of the practices of others in detecting fraud. You can learn more about the procedures used to identify debtor fraud, abuse, or error as well as the case reviews of private trustees and field offices.
Internal Revenue Manual - 5.9.4 Common Bankruptcy Issues — This page on the IRS website covers all sorts of issues with bankruptcy filings. You can learn more about bankruptcy fraud, sale of property, and credits, refunds, and offsets.
Find an Ohio Bankruptcy Lawyer for an Error-Free Filing
If you are considering bankruptcy to resolve your current financial situation, you will want to make sure that everything is handled properly. It is in your best interest to make sure that you have legal representation with the knowledge and experience to ensure you experience no issues when filing for Chapter 7 or Chapter 13 bankruptcy.
Steiden Law Offices assists clients all over Boone County, Kenton County and Hamilton County. You can have our Cincinnati bankruptcy attorneys review your case by calling right now to schedule a free, confidential consultation.