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What Not to Do Before Filing for Bankruptcy

EH Law Group June 23, 2023

Bankruptcy can be a frightening word. Many people equate it with losing everything and never being able to get credit again to buy a car or home. For the most part, those fears are unfounded.

Depending on the type of bankruptcy you file—Chapter 13 or Chapter 7—you’d be surprised at how many assets you can retain and how your financial future may actually be better than you initially thought. A fresh start is indeed possible under bankruptcy, offering you and your loved ones a clean slate with which to begin life anew.

Like every other decision in life, however, a bankruptcy filing requires some forethought and planning. Depending on your circumstances, you may not want to rush into a bankruptcy petition. In other circumstances, you may want to act quickly. There are also actions you should most definitely avoid before you attempt to file for bankruptcy. 

If debt is overwhelming you in or around San Mateo, California, contact our bankruptcy attorneys at EH Law Group. We will analyze your financial situation and advise you of your best options going forward. We can help you navigate the bankruptcy process from start to finish so that you can seek a fresh financial start.  

In addition to San Mateo, we proudly serve clients throughout San Francisco, Santa Clara County, Oakland, Daly City, and South San Francisco. Set up a consultation today. 

What NOT to Do Before Filing for Bankruptcy Protection 

Our clients often wonder what concrete actions they can take—and what actions they should not take—before filing for bankruptcy. Here are some actions that may negatively impact your chance at a brighter financial future: 

Using Retirement Savings To Pay Off Debts

Many of your assets are protected from creditor seizure during bankruptcy. Your retirement savings, Social Security, many public benefits, and even worker’s compensation and unemployment insurance cannot be touched. Your real assets are also protected under California’s generous exemptions for cars, homes, tools of the trade, and more.  

What this means is that you should not tap into your retirement savings to pay your bills. Similarly, you should not take out a second mortgage to get rid of debt. Consult with your attorney for a solid strategy instead. 

Taking On Any New Debt

Don’t get a personal loan (or second mortgage) to pay off debts unless the payment is manageable and will relieve you of all your obligations in a decent period of time. However, this is rarely the case. When you’re in debt, getting a personal loan is probably going to include elevated interest rates and onerous terms if you’re late. Generally speaking, debts that occurred within 90 days of your bankruptcy filing will not be included for discharge unless they were for emergencies. In other words, you can’t go on a shopping spree for jewelry and clothes. 

Moving or Hiding Assets

You may concoct a plan to “sell” a car to a friend until your bankruptcy is concluded and then get it back for free or with little or no payment, but this can be considered bankruptcy fraud. Your petition can be dismissed and you yourself are subject to prosecution. 

Ignoring Taxes Due 

Taxes are generally not dischargeable in bankruptcy, and your filing will have to be accompanied by your latest tax return documents. Make sure your taxes are all current. 

Misrepresenting Your Personal Assets Or Other Information

It may be tempting to not include assets you have or income sources that you enjoy when filing for bankruptcy, but like the “selling the car” scenario, this can only come back to haunt you. 

Selectively Paying Debts

Don’t juggle obligations, such as paying some, ignoring others, or paying less than the minimum. When it comes to unsecured obligations, you’re likely better off simply stopping paying all of them until you file for bankruptcy. The bankruptcy filing will give you what is called an “automatic stay,” which means creditors and bill collectors have to stop contacting you and attempting to collect. Keep in mind that secured creditors for cars and homes, however, can seek a removal of the automatic stay to pursue repossession or foreclosure, so you need to act quickly to try to refinance or get better terms. 

Trying to File for Bankruptcy Alone

Bankruptcy filings across the nation are on the rise in 2023. In fact, the American Bankruptcy Institute (ABI) reports that all filings in May 2023 were up 23 percent from May 2022 and stood at 38,669 vs. 31,330 in 2022. Although filing for bankruptcy may be an increasingly popular choice for average consumers, this doesn’t mean that you should attempt the process all on your own. The best advice for pursuing bankruptcy has always been—and will always be—to consult with an experienced legal team. 

Remember, a bankruptcy filing is not a slam dunk. You need to submit many documents, including debt obligations, credit report statements, income proof, and tax filings to even get the process going. In addition, in either Chapter 13 or Chapter 7 bankruptcy, you will have to attend a meeting with creditors, who can challenge your petition. An experienced bankruptcy attorney can help you navigate all these requirements and then exercise your rights when any challenges or obstacles come forth. 

Questions? Contact Our Bankruptcy Attorneys 

You may be unsure if bankruptcy is your best option, but you should at least seek a professional evaluation and guidance. You may spend weeks or even months being hounded by creditors and bill collectors when you can stop it all with a bankruptcy petition. You’ll be able to emerge with a fresh financial start, your unsecured creditors no longer on your case. 

If you're in San Mateo or anywhere else in California, contact the bankruptcy attorneys at EH Law Group. We will analyze your situation and advise you of your best option going forward, and then guide you through the bankruptcy process to obtain a new lease on life.