Dan Freund, Eau Claire bankruptcy attorney

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This page contains general information. Contact a WBG attorney for specific advice.

WBG attorneys see the mistakes folks make before they start a bankruptcy. Here are five of the most common.

1. Pay creditors.

Often, a person thinking about bankruptcy will want to pay a debt owed to a relative, medical provider, or friend. The law identifies such payments as preferences because the debtor prefers those creditors over other creditors.

However, a bankruptcy trustee may get a refund from a preferred creditor. The end result: Your relative, doctor, or friend does not get to keep the money you paid. And, before that, they have to deal with a letter from your bankruptcy trustee demanding repayment.

So, what should you do if you want to pay back someone special? Pay that person after the bankruptcy. The discharge prevents creditors from forcing you to make payment. But it doesn’t prevent you from making a payment voluntarily.

2. Give things away.

Like preferences, the trustee can demand a return of gifts. So, like preferences, a pre-bankruptcy gift will likely be no more than a temporary transfer.

Actually, gifts are worse than preferences in two ways. First, the look back for a preference is only ninety days for most creditors, and one year for others (such as relatives and close friends). The look back for gifts runs four years.

Second, a judge might find you made the gift to “hinder, delay, or defraud” creditors. If so then you could lose your discharge, the one thing you filed a bankruptcy to get.

3. Hide things.

If you don’t list an asset in your bankruptcy a judge will likely find you acted to “hinder, delay, or defraud” creditors. Poof, there goes your discharge. Worse, by submitting false bankruptcy documents you committed perjury. So you also might end up in federal prison.

4. Incur more debt.

If you know you will file a bankruptcy then you know you will ask the judge for a discharge of debt. Borrowing money just before you start a bankruptcy is fraud, plain and simple.

5. Rush into bankruptcy.

Starting a bankruptcy will result in big financial changes. And, often, you can’t easily get out once you’ve gotten in. So take a breath and check out Four Things To Do BEFORE Bankruptcy.

More bankruptcy questions? Check our our FAQ page.

This page contains general information. Contact a WBG attorney for specific advice.
Wisconsin Bankruptcy Guide is provided by law firms designated as Debt Relief Agencies by the federal government because we help people file for relief under the Bankruptcy Code. We also provide other types of debt relief options.

Image credit: Richard Winchell

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