Filing For Bankruptcy? A List Of DONT’S Pt. 2

Don’t repay family members. The thing is that they can’t be treated different than other creditors. Under the law, relatives have the same exact legal status as every other creditor that you owe. Thus, relatives can’t be treated differently than all of the other places. I know that stinks, however it’s the law.

Don’t liquidate your retirement account! They are usually exempt property in a bankruptcy regardless of what chapter you file, so it’s unnecessary to do this. Some people liquidate and still owe massive amounts of money, and if you withdraw these funds early that makes you liable for taxes and penalties which might not be discharged in the bankruptcy.

Don’t transfer property out of your name before you file bankruptcy. This action can be undone if a fair price isn’t received, or if it were made with intent to defraud, delay, or hinder a creditor. Friends and relatives fall into this category too.

Don’t use your equity line of credit to pay off your debt. Under most federal and state law, you do have the option to claim exemption for the equity in your home. So you can go through bankruptcy and still be able to have this equity.

So in a nut shell, if you utilize your equity line to pay off debt or take out a second mortgage, you will pretty much be converting debt that would have been discharged in bankruptcy into debt which you will still need to pay so you can keep your house.

One Do: Always tell your lawyer the truth and let them fully know all of your concerns. Naturally, courts take their rules seriously and they have the ability to file criminal charges if you commit intentional fraud. And even if they don’t go that far, they can refuse to discharge a particular debt, or simply dismiss the entire case.

Mallory McGuinness works for a debt collection company. Also, she writes pieces on business and finance, consumer spending, and collection agencies