Things To Avoid In Bankruptcy

DO NOT DO THESE THINGS IF YOU ARE THINKING OF BANKRUPTCY!

Hide Assets:

Some clients may own property they would lose, if they filed bankruptcy. Others may have debts they do not want to report to the Bankruptcy Court. During our initial interview, I will ask you a number of questions about items that you own. I will also ask you about money other people may owe you (inheritances, loans you have given to other people, etc.). I need you to be 100% honest with me because when we prepare your bankruptcy papers, we must report these items to the Bankruptcy Court.

Sometimes, I have clients who I warn may face a problem with a debt, or a particular piece of property and they ask me, “But do we have to tell the Court about that?” It’s an honest question. Here’s the answer that I give: “The Good news is it’s a federal prison, and you get to meet some interesting people, but the BAD NEWS is that it’s still FIVE YEARS IN PRISON and a $500,000 FINE if you lie on your paperwork and the worst news is that your attorney gets to go with you!”

Here’s the trick: there may be lots of things that we can do to help you address particular situations before you file bankruptcy. Do NOT worry about the consequences: just tell me the truth, and let’s figure out how best to proceed. If you have substantial assets that could be lost in Chapter 7, then maybe Chapter 13 is right for you.

Either way, you must list all of your assets and all of your debts in your bankruptcy petition. No one at my firm can tell you to avoid listing an asset, or a debt. If they do, you should go to another law firm. We are honest lawyers.

Pay Back Relatives:

Many of my clients owe their relatives money and they try to pay them back just before they file bankruptcy so they do not have to include their relatives when they file. This is what we call a “preference.” The Bankruptcy Code gives the trustee special powers to avoid these preferences. If you repay a relative a substantial sum of money within one year before you file bankruptcy, the trustee may be able to obtain a court order to go get that money from your relative. Please consult with me before making any such payments.

Transfer, or “Give Away” Valuable Property:

If you give valuable property away for little or no money just before filing bankruptcy, this may look fraudulent to the Bankruptcy Court. You could lose your bankruptcy discharge, or face criminal prosecution. You may be able to sell some items for fair market value, but this cannot be done fraudulently. Please see me before making any move like this. Our initial consultation is free: messing up your own bankruptcy could be very expensive for you!

Pay Off Large Debts:

Some clients pay off large unsecured debts to their credit union, or their favorite credit card, just before they file bankruptcy. If you repay more than $600 to a general, unsecured creditor within 90 days before you file bankruptcy, and it is not your regular monthly payment, the trustee may have the authority to go to that creditor and recover the money. In that case, you may be defeating your goals.

If you want to keep an unsecured creditor happy, you may want to simply “reaffirm” with that creditor and sign an agreement in bankruptcy in which you agree to keep making payments after you file bankruptcy.

Destroy Business Records:

If you are in business, the trustee may want to review your business records to determine that there are no assets to administer. If you destroy your business records, (s)he cannot determine this. You could lose the right to your discharge and face possible prosecution for “obstructing, hindering, or delaying” the trustee. PLEASE cooperate with the trustee! He or she holds a lot of power.


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