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You may have seen our earlier post on “4 things to do before filing for bankruptcy.” On the flipside are things a person should not do before filing for bankruptcy. What you do or don’t do before filing can have a great impact on whether your filing achieves your desired goals.

Let’s take a look at some of the things to avoid before filing for bankruptcy:

1. Don’t use a credit card to buy that fur coat.

Or any other luxury item, for that matter. Under the so-called “presumption of fraud” doctrine, luxury goods and services that are purchased with a credit card within 90 days of filing bankruptcy and cost more than $675 are presumed to be fraudulent, and thus not dischargeable in a Chapter 7 bankruptcy.

The rationale behind the presumption is that consumers who make such luxurious purchases right before filing for bankruptcy had no intention of repaying the debt. So, they should pay the debt rather than discharge it.

2. Don’t take out large cash advances.

Similar to the “presumption of fraud” doctrine mentioned above, if you withdraw more than $950 within 70 days of filing for bankruptcy, the new debt is presumed to not be dischargeable. The $950 amount is cumulative over the 70 day period and can be met by combining one or more cash advances.

Again, the rationale is that consumers on the brink of bankruptcy do not take out large cash advances unless they hope to discharge the debt and not repay it.

3. Don’t neglect to file your income tax returns.

Income tax returns are critical in determining your earnings and assets. Because of this, a Chapter 13 bankruptcy case will very likely be dismissed if tax returns haven’t been filed for the two years leading up to the bankruptcy filing.

4. Don’t hide or transfer assets.

You may be tempted to move, sell, hide or transfer assets before filing for bankruptcy in an attempt to safeguard them or dispose of them as you see fit. If you do, however, you may be denied a discharge and even subjected to criminal charges.

Although there isn’t anything necessarily wrong or criminal about selling some property to pay off debts prior to filing, the bankruptcy trustee will likely ask if any assets or property were sold, transferred or given away in the year prior to your filing.

5. Don’t repay some loans and not others.

Before you file for bankruptcy, wouldn’t it be nice to pay your brother back that $500 he loaned you? Well, it might be the nice thing to do but it may be considered a “preferential transfer.” Under the bankruptcy code, a preferential transfer is one made by a debtor to a creditor prior to a bankruptcy filing that is detrimental to other creditors. And the bankruptcy trustee can sue the party who received the payment to recover it.

These are just a few of the things a person should not do before filing for bankruptcy. To learn more about what to do and not to do prior to bankruptcy, contact a qualified bankruptcy attorney.