It can be a long road for some people deciding that filing bankruptcy is their way out of debt. Individuals should educate themselves prior to filing to not make financial mistakes that could hurt their bankruptcy filing. Sometimes money transfers or payments can cause an individual who might even be unemployed to fail the means test and not qualify for Chapter 7. This is one of the pitfalls that a bankruptcy attorney would warn you about. If you think there is any possibility that you or anyone in your family might be in a fragile financial situation where filing bankruptcy could be your future, to not transfer property to any family members or friends. Transferring a piece of real estate to your heirs just to avoid probate can cause a disaster if you or one of your heirs is filing for bankruptcy. The reasoning of Grandma and Grandpa many times is, Junior is going to end up with the property anyways, let's avoid all the taxes and put his name on it now. Although the thought behind it is pretty noble, it also will really mess up a bankruptcy. When the parents don't know the big kids are in financial trouble and in the process of filing bankruptcy, the bankruptcy trustee will count the property as an asset and see it as a chunk of cash if it was liquidated. This goes the same for taking money out of a 401(k) to pay living expenses. The bankruptcy court will count this as income and this could cause you to be kicked out of a Chapter 7 even though you rightfully qualified.
What's very similar and funny is an individual can trade in a car that is owned outright on a newer vehicle and use the vehicle as a down payment and the trustee won't seem to care. Many times the value of the trade-in vehicle might have been otherwise un-protected by exemptions in a bankruptcy filing. Since the new car is financed prior to the bankruptcy filing the debtor should be able to reaffirm the debt and keep the new car they recently bought. In a lot of cases this might be advice given by a bankruptcy attorney. The debtor's old vehicle, even though it's owned outright, might not be too reliable and after the bankruptcy is filed there is probably no way in the near future the debtor will be able to purchase another vehicle on a loan. These are some of the decisions that should be thought out before filing for bankruptcy.
There is a big difference between smart personal bankruptcy planning and outright fraud. There are many areas under the bankruptcy law that are gray areas. Bankruptcy trustees and judges usually look at the end result and rule that good planning weighs heavier than fraud. Just because an individual finds himself with a debt free older car that is not protected in bankruptcy doesn't mean that they shouldn't trade it in on a newer car because of the situation they would be facing. The courts know that people need reliable transportation and lenders don't give loans to individuals that just got a discharge and a bankruptcy filing. The main thing to remember is always consult your bankruptcy attorney before transferring any property of any kind.
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