1. Borrowing money from relatives
You may be tempted to ask family members for a loan in order to pay off some debts and help you avoid chapter 7. However, this is an ill-advised move for a number of reasons. First of all, these kinds of financial arrangements among family members and close friends can certainly strain your relationships, and it’s probably best to avoid this except in extreme cases (like medical emergencies).
Remember this simple and wise rule handed down to us: you can’t borrow your way out of debt. Our own government may ignore this advice (to our future peril), but you should take caution to avoid making the same mistakes in your own finances. If you stop and think about it, this habit of borrowing from Peter to pay Paul may in fact be how you accumulated your financial burdens to begin with.
2. Repaying money to relatives
If you decide to borrow money from relatives despite our warnings (or if you already did this before reading this article), you should take care not to pay back the loan if you’re about to declare bankruptcy within the next year. Believe it or not, any amount of $600 or more can be taken from your family member by the bankruptcy trustee. The idea is simply that your family members should be able to cut you some slack and allow other creditors to be paid first.
3. Not listing all of the creditors
It is important that you list all of your creditors on your bankruptcy petition. Yes, technically you may be able to amend your petition after you file. However, this is not guaranteed and can even cause trouble if the federal bankruptcy judge suspects that you are trying to hide something. You need to be accurate and disclose all of your debts so they can be wiped out.
4. Playing games with your bankruptcy petition
The last point mentioned the importance of listing your creditors accurately, but we were assuming that you were trying to be honest to begin with. Under this section, we simply want to emphasize the importance of playing it straight. Neither the bankruptcy judge, nor the trustee, nor your creditors are stupid. It’s simply not worth the trouble if you’re trying to hide something or deceive the court.
5. Transferring assets to protect them from creditors
You might be thinking of clever ways to protect your assets from creditors, such as transferring them to your family members. However, the bankruptcy statutes already take this into account, and you’re not allowed to do this if you’re trying to file chapter 7 bankruptcy . In the end, you are simply asking for trouble not only for yourself but also for the family members who receive the property.