Bankruptcy is designed, at its heart, to provide honest but unfortunate debtors the opportunity for a fresh financial start. As a Palatine bankruptcy attorney, I would like to point out some behaviors that should be avoided prior to bankruptcy because they can cause major problems.
The most important thing for debtors to do is to fully and completely disclose anything and everything to their attorney; from that bank account opened 8 years ago with $50.00 in it, to that slip-and-fall accident at work two weeks ago, and everything in between. Non-disclosure can lead to the dismissal of a bankruptcy case, denial of bankruptcy relief, loss of the non-disclosed asset, or even criminal prosecution.
In most situations, the Chapter 7 bankruptcy attorney can take steps to properly address almost every situation. In other situations, some facts may require that an attorney advise the debtors on a different course of action or of the consequences of a specific act; that information can lead to proper legal advice so that the debtors can make an informed decision based on the risks involved in their particular factual situation.
There are other behaviors to avoid as well.
1. Avoid gifts to friends or family. Any large gifts to friends or family, or repayment of debt to friends or family, may be considered a preferential payment. That may cause the trustee in your case to sue your friends or family for return of that gift or payment. The trustee would then use that money to pay your creditors evenly.
2. Avoid using debt to pay debt. That 12 month 0% offer from Creditor A seems like a good way to pay Creditor B while you continue to scramble to pay Creditor C, right? Actually, using debt to pay debt is a major indicator of fraud. The fraud comes in to play in the fact that a debtor can’t afford to pay Creditor A or B, and is using to 12 months 0% offer to buy time. Taking on debt when one cannot afford to pay it is called fraud and such conduct can cause problems under all types of bankruptcy.
3. Avoid making any charges for at least 90 days prior to filing for bankruptcy. Any charge within that 90 day period is presumed to be fraud, and the creditor can take action to leave you responsible for that debt after your bankruptcy.
If these situations happen, a creditor or trustee can file an adversary case to seek relief from the bankruptcy court, which may be in the form of dismissal of the bankruptcy case, denial of the bankruptcy discharge, or other actions. An adversary case is a lawsuit brought within the bankruptcy case. The adversary case follows the same rules as any other civil lawsuit, and the creditor or trustee must prove, by a preponderance of the evidence, that their claim is correct. Thus, heed the bankruptcy advice of a seasoned attorney. You will be better for it in the long run.
Adversary cases are rare, and are best avoided. In many situations, an adversary case can be defended, but at an additional and sometimes considerable cost to the debtor due to the complexity of the work involved.