4 Reasons Filing Bankruptcy May Be a Very Bad Idea

For some people filing bankruptcy would not only bring a lot much-needed release, but it's also a smart financer step, Bankruptcy clear a lot of debts and truly provide a fresh start. However, there is a situation where filing bankruptcy can be a very bad idea, in this article I would discuss four scenarios where bankruptcy can end up being more trouble than its worth.

filing Bankruptcy



1. You Have Unprotected Assets

This applies specifically to a chapter 7 bankruptcy, chapter 7 filing is a relatively short process and really packs a punch in that it will eliminate almost all of your owe unsecured debts, debts like medical bills, credit card, personal loan, they will completely eliminate.
  • However chapter 7 is a liquidating Bankruptcy meaning if you have an asset that is not protected by one of your state's exemption laws there's a chance that Bankruptcy trustee will seize the asset, sell it and give the money to your creditors, with this in mind if you have significant non-exempt assets a chapter 7 filing could end up costing you a lot in terms of loss as lost assets.
For instance, if you live in Arizona and you own a boat free and clear of any loan then there's a good chance they would be seized. Same thing for ATVs, RV and most of their big-ticket toys, exemption laws protect most of your essentials like household items, cars, wedding rings, retirement account, but if you happen to have something valuable that does not protect you may want to reconsider your decision to file a Chapter 7 Bankruptcy and possibly look to a chapter 13 Bankruptcy where you won't lose the asset but will be required to complete a payment plan over five years.


2. You Recently Gave Away Assets

If you're considering filing for Bankruptcy it is best to maintain the status quo, and what I mean by that is you shouldn't be taking your name off the title on vehicles or transferring assets to another family member, this can cause big problems, in Bankruptcy, their laws this state that if you've given away an asset to someone who didn't pay you anything within two years prior to your Bankruptcy filing, then it's considered a fraudulent transfer, whether you actually had in the fraudulent intent or not.
  • The reason these laws are in place is that they don't want people to transfer all their assets out of their name, filed for Bankruptcy and then transfer everything back into their name once the Bankruptcy is over. This would be unfair to your creditors.
The laws allow the court to undo those transfers that occurred within two years prior to your Bankruptcy filing in which you gave away an asset and didn't receive anything in return.

If you're in a similar situation it's best to meet with your Bankruptcy lawyer before you transfer your name off of any asset, it could end up saving you and the person you transfer the asset to a lot of grief and money.


3. You Recently Paid Back A Lot of Money To A Family Member Or Friend

I understand why people do this but it can cause problems in your Bankruptcy filing, the thinking goes along these lines I'm going to file for Bankruptcy I own my brother $5,000 and I don't want him to think I'm not going to pay him back so I'm going to pay him back and then file my Bankruptcy.
  • The reason why this can be a big problem is that one of the ideas underlying the Bankruptcy system is that your creditors will be treated equally and any distribution of money will result in all of your creditors getting their fair share of the money.
If you pay your brother $5,000 and pay your credit cards zero then you're clearly preferring your brother over your other creditors and this is known as a preference, how the rule works is if you have paid any of your run-of-the-mill predators more than $600 in the 90 days prior to your Bankruptcy filing, the Bankruptcy trustee can go back and ask for that money back, 

Furthermore, if you paid any of your family members or close friends money back in the last 12 month before your Bankruptcy was filed, the Bankruptcy trustee can go and demand that they give that money back to the court so that it can be distributed fairly to all of your creditors.

Having a Bankruptcy trustee contact your brother can not only make Thanksgiving really awkward but can be a reason not to file a chapter 7 Bankruptcy or to at least consider postponed ended, until a year has passed since you paid the debt.


4. You Have Debts That You Incurred Through Fraud

This one is rare but if you have debts where there was fraud involved, filing Bankruptcy may not be a good idea here's why

If a creditor believes that the debt you owe was incurred fraudulently then they have the right to come into your Bankruptcy case and file a mini-lawsuit known as an adversarial proceeding, to ask the court to determine if their debt was incurred through fraud, if the judge determines it was, then the specific debt will be deemed non dischargeable, meaning that the particular debt is yours to keep for life
  • It will not be going away in the Bankruptcy, adversary proceedings cannot only result in a debt not being discharged in your Bankruptcy but can be costly as the legal fees for defending an adversary proceeding are usually not included in the flat-rate Bankruptcy fee the most attorneys charge
It's important to note that these types of proceedings are rare and the requirements to prove fraud is not easy to do, incurring debts and then running into hard times and not paying back your debts is not fraud, however if you're  in involved in a Bernie Madoff type scheme Bankruptcy is likely not a good option.

If you can't file for Bankruptcy what are your options, I understand that it's all fine and good to understand that there is a situation where Bankruptcy filing can cost you a lot of grief, but that doesn't help you deal with your debt problem.

There are other options including bankruptcy option that can help you to eliminate most of your debts, most of the problem scenarios described in this article are only problems in a chapter 7 filing with the exception of fraud which is going to be an issue in any type of Bankruptcy.
  • Chapter 13 bankruptcy could be a viable option to allow you to keep your assets and eliminate most of your unsecured debts, you'll have to make payment to your creditors over the next five years but in the end, you'll likely able to eliminate most of your debts.
Another option is debt settlement, debt settlement is the process where you approach your creditors and offer to pay them an amount less than one is actually owed, debt settlement can work but has the obvious downside that you're going to need to have a fair amount of cash to make it work.

One of the most important takeaways I give you in this article is that if you're considering bankruptcy, meet with a bankruptcy attorney early on in the decision-making process, people meet with an attorney after decisions have been made that will adversely impact the bankruptcy filing, almost all bankruptcy attorney will meet with you at least one for free and that can give you a good idea of things you should and shouldn't do in leading up to your bankruptcy filing.


Thanks for reading, hopefull you something new in this article.

Author:

Hi, i am Micheal, the guy behind Roadtosuccesse. I share tips and tricks to help take a business to the next level, show which systems I personally endorse and use, share what I learn as a student of the game, and help people with personal development so that they can reach their full potential.

Facebook Comment