The time leading up to a bankruptcy filing comes with a lot of uncertainty. Figuring out how to spend your money, what to pay off, and how to balance assets can cause confusion that leads to mistakes. Pearce Law Firm in Foley, AL, advises you to tread carefully before declaring bankruptcy, as improper handling of your finances can lead to dire consequences once you file.

5 Things to Avoid Before Filing for Bankruptcy

1. Skip Filing Taxes

If you’ve put off filing taxes prior to filing for bankruptcy, you’re creating a massive obstacle for yourself. Income tax records are the one surefire way the Internal Revenue Service can make a financial assessment; without a complete picture, they are likely to dismiss your bankruptcy plans.

2. Sell or Transfer Assets

When facing Chapter 7 bankruptcy or Chapter 13 bankruptcy, it might be tempting to sell major assets like property or automobiles. However, selling such items will put a major hitch in your bankruptcy claim or even lead to criminal charges. Any money made must go toward debt repayment. Assets randomly transferred to someone are a red flag to the bankruptcy court.

3. Accrue More Debt

Unless you’re charging for rent, gas, and other essentials, avoid building more credit card debt before a bankruptcy filing, as it can be considered fraud. Creditors could argue you accrued the debt with no intention of paying it back, and the debt might not be discharged after bankruptcy. You also should avoid taking out loans for this reason.

4. Pay Preferred Creditors

Paying back favored creditors can be considered preferential treatment. While it might seem like the right thing to do, large out-of-the-ordinary payments to certain creditors might be suspect. You should continue to pay bills, but spread payments evenly so no bias is implied.

5. Cash Out Retirement Accounts

401(k) and IRA accounts are excellent places to make your money untouchable, even from creditors. However, if you cash out an account to pay debts before filing for bankruptcy, the money will be heavily taxed and creditors could snatch it up at a moment’s notice. These accounts usually are safe during bankruptcy, so leave them alone.

If you’re facing bankruptcy, contact Pearce Law Firm in Foley, AL. They can help you prepare your filing and offer guidance throughout the process to achieve a positive outcome. Call (251) 368-2992 to schedule a consultation with an attorney, and visit their website to learn more about their financial solutions.