What not to do before your Texas bankruptcy

On Behalf of | Aug 10, 2012 | Bankruptcy |

When you face overwhelming debt, the last thing you want to think about is what not to do with that debt. Instead, you want to focus on a better future, a future after bankruptcy.

For a bankruptcy to be successful, however, there are some things you should avoid doing before you file for bankruptcy:

Do not use your retirement funds. These funds are for retirement and are protected from creditors. They are also protected from bankruptcy trustees. Creditors and trustees can only access that money if you take it out of your retirement accounts. Therefore, if you find yourself in over your head in debt, keep that money in your 401k or IRA. Filing bankruptcy is a better option to using up your 401k or IRA.

Do not transfer assets. Transferring an asset (such as a piece of property) away from you before bankruptcy may seem like an ideal solution to protect that asset from liquidation in bankruptcy, but that transfer may make it impossible for you to file bankruptcy and can even lead to other consequences. This is because it is considered fraud (a “fraudulent conveyance”).

Do not pay back family members or friends. Family and friends are considered creditors just like anyone else. To choose one creditor over another within the year prior to bankruptcy may be considered “preferential treatment” and may backfire on you. Generally, bankruptcy trustees can go after the money in order to include it in the bankruptcy estate. You do not want your family members to face lawsuits for that money.

Do not take out a mortgage to pay debt. Turning unsecured debt into a mortgage is a bad idea. First, you can lose your home if you are unable to pay the mortgage payments. Second, unsecured debt, such as credit cards and personal loans, can be discharged in bankruptcy.

Do not completely get rid of your money. It may seem contradictory, but using up all of your cash before filing for bankruptcy is actually a bad idea.

Do not ignore creditors. It can be challenging to respond to creditors, but ignoring your debts, the mail and even your email can lead to future problems. You need to know if a creditor brings a lawsuit against you or if there are any penalties you are missing.

Depending on your unique situation, filing for bankruptcy may be one of the best things you can do to protect your financial future. Before you act on your debt, take the time to speak with an experienced bankruptcy attorney. A lawyer can advise you what to do and what not to do in the critical months before and after bankruptcy.

Learn more about bankruptcy by visiting our pages on consumer bankruptcy in Texas.