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Accounting Series- Confusing Tax Forms

If you think that you might decide to file for bankruptcy, there are some things that you should not do in preparation. Some of these may surprise you.

Transferring Property or Money

People often believe that if they transfer assets, such as houses, cars, and cash to relatives or others that those assets will be safe from the bankruptcy proceedings. This is a complete fallacy, and in fact, transferring assets does little to protect your assets. Worse yet, these attempts can be construed as fraudulent by the court, even if you had no intention of concealing the assets.

Remember that just because you have assets, it doesn’t mean that you can’t file bankruptcy. Also, just because you file, does not mean that you will necessarily lose your assets. The reality is that most people are able to keep their personal assets when they file for bankruptcy, so hiding them is completely unnecessary.

Paying Off Certain Creditors

You might think that you’ll improve your chances of obtaining a bankruptcy if you attempt to pay off some of your debts before you file. This, however, is misguided, and potentially damaging to your case. If you make an out-of-the-ordinary payment to completely pay off a creditor, it is called a preferential transfer. What that means is the creditor received payment in preference over other creditors that hold the same weight. Oftentimes, the bankruptcy trustee will sue the creditor, called a clawback lawsuit, to get the money you’ve paid them back so that it can be distributed equally and fairly. This process will delay your filing and ultimate discharge.

Using Your Credit Cards

Perhaps the first thing that you should do if you’re having financial problems that are leading to bankruptcy is to stop using your credit cards immediately. That means no shopping, for clothing, electronics, or other luxuries. It also means not taking out any cash advances against your credit cards. You can, however, continue to use a debit card that is connected to your bank account to pay for the things you buy.

Depositing Extra Money Into Your Bank Account

The only money that should be deposited into any of your bank accounts should come from sources of income. That can be from your job, but it can also be from work that you do for others outside your job. Never deposit anything else, like a check for a friend, or money that belongs to someone else that you’re just holding on to. Likewise, don’t accept checks or cash to deposit from friends and relatives that are trying to help you overcome your financial shortfalls. If you own your own business don’t run your business transactions through your personal accounts, keep everything separate to avoid confusion and the appearance of fraud.

Filing Lawsuits

The moment you file for bankruptcy, all of your assets, including current and future payments awarded from a lawsuit, are transferred to the bankruptcy court. That means that you may not receive any of the money awarded to you, even if your legal case has not been resolved, or if the amount of the settlement hasn’t been determined. Furthermore, legal claims that you haven’t yet filed in court are also transferred to the court. There are, however, state exemptions as to how much, if any, of a settlement or other award can be taken from you. In some states, it may be the entire amount, in others in maybe a fraction of the total, based upon what you need to live. Still, other states allow no exemptions whatsoever.

Accepting Future Payments

Remember that all of the payments that you expect to receive in the future, are part of your bankruptcy estate, the same as the funds that you currently have. In other words, your bankruptcy trustee can, and most likely will, seize future money and use it to repay your creditors. Future payments include such things as tax refunds, or and potentially an inheritance, depending upon when you receive it. While you may not be able to stop those payments from coming to you, be very aware that they effectively become the property of the bankruptcy court until such time as your creditors are satisfied.

Carolyn Secor P.A. focuses its practice in the areas of Bankruptcy and Foreclosure Defense in Clearwater, Florida. For more information, go to our web site www.BankruptcyforTampa.com or call 727-254-1704.

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