Nobody thinks they will ever need to file for bankruptcy. Many people believe it’s a last resort for those who have lost everything, or that it ruins your credit forever. At Duncan Bankruptcy Law in Augusta, we hear these misconceptions every day. In reality, for those struggling with overwhelming debt, Chapter 7 Bankruptcy can be a powerful tool that can help you start over and create a new beginning.

However, the path to successful discharge (legal forgiveness of debt) is paved with specific rules. Mistakes made in the weeks and months leading up to filing can have serious consequences, potentially jeopardizing your case or the assets you are trying to protect.

1. Raiding Your Retirement Accounts

When the collection calls just won’t stop, it can be tempting to dip into your 401(k) or IRA in order to make ends meet. However, this is almost always a serious mistake. Funds in most qualified retirement accounts are protected during a bankruptcy process. The United States Bankruptcy Code explicitly shields these assets, so creditors can’t touch them. 

If you withdraw this money, you’re converting protected assets into cash that the bankruptcy trustee can then use to pay your creditors. Not only will you lose your financial security, but you may also face additional fees and taxes.

2. Transferring Assets to Family or Friends

The fear of losing a valuable family heirloom or second car can cause people to quickly transfer ownership to a relative. However, this is a major warning sign for the bankruptcy court, as it may indicate fraudulent behavior. The trustee has the authority to undo these transfers if they believe they were made with a value less than the actual property’s worth within a certain time period before filing for bankruptcy (often two years). 

These transfers are known as fraudulent transfers. If the trustee determines that the asset was transferred fraudulently, they can reclaim it from the friend or family member who received it, creating legal complications and potentially leading to the dismissal of the bankruptcy case.

3. Running Up Credit Cards

Knowing that you plan to file for bankruptcy, it might be tempting to use your available credit for a last-minute large purchase, such as a new appliance or a vacation. However, this is a risky move. 

Debts for luxury goods or services exceeding $800 that are owed to a single creditor within 90 days of filing for bankruptcy are not discharged. This means that you could still be legally responsible for that debt after other debts have been wiped out. The court may see this as an attempt to abuse the bankruptcy system.

4. Making “Preferential” Payments to Certain Creditors

In an effort to maintain good relations with a particular lender, such as a family member or a local bank, you may choose to pay them in full while neglecting other debts. This practice is known as preferential payment. 

However, the bankruptcy trustee has the authority to reclaim these payments made to creditors within 90 days of filing (or one year in the case of insiders like relatives) and distribute the funds equally among all your creditors. This action can strain relationships and may not provide any net benefit for you.

5. Filing Without Professional Legal Assistance

Bankruptcy is one of the most complex areas of law in the United States. While it’s important to understand the basics, navigating this process on your own can be risky, as the forms and rules are intricate. Even a small mistake can lead to your case being denied, so an experienced bankruptcy attorney in Augusta is essential. 

They understand the exemptions available under Georgia law, which can protect your home, car, and income. They know how to structure your petition correctly, avoiding common mistakes and maximizing your relief under the law.

Let Duncan Bankruptcy Law Guide You to a Secure Future

At Duncan Bankruptcy Law, we understand that good people turn to us when they are in difficult times. Whether it’s due to job loss, illness, or feeling overwhelmed, you don’t need to face these challenges alone. Remember that bankruptcy is something that happens to you, not who you are as a person.

If you’re considering bankruptcy under Chapter 7, please don’t make any decisions without consulting us first. We offer free, confidential consultations to review your situation and help you determine the best course of action for a fresh financial start.

Contact Duncan Bankruptcy Law today to schedule your free consultation.