The decision to file for bankruptcy should not be entered into lightly or without a full understanding of all the potential issues involved. The promise of a fresh start on a new financial footing can easily be derailed if proper procedures aren’t followed or, worse, if you take actions prior to filing that impair your chances of success.

When you file your bankruptcy petition, you include a listing of your assets, liabilities, income, expenditures and other relevant financial information. The court-appointed trustee assigned to your case reviews all transactions you made in the two years prior to the bankruptcy filing. The purpose of this "look back" period, which can be longer in some cases, is to see whether you significantly reduced your income or assets in anticipation of filing for bankruptcy. Such conduct can be considered fraudulent, which can have severe consequences for your case.

There are among the pre-filing mistakes you should avoid:

• Paying one creditor to the exclusion of other creditors — It’s understandable to want to repay a relative who lent you money or made the car payment, but the trustee has the power to sue to recover what has been paid to some creditors and distribute the amount among all creditors.
• Transferring title to assets — It’s considered fraudulent to gift an asset or to sell it for a price significantly less than its worth if the purpose is to avoid including it in your estate. The trustee can void the fraudulent transaction and recover the property or its value.
• Acquiring significant new debt — Adding debt for non-essential purchases shortly before filing can be considered fraudulent. If so, the newly acquired debt will be excluded from the bankruptcy.
• Failing to file income tax returns — Tax returns provide information critical to your bankruptcy, such as income, assets and tax obligations. The failure to file to file tax returns for two years prior to bankruptcy can make it difficult to establish your eligibility.
• Depleting retirement accounts — Some debtors withdraw money from IRAs or other retirement accounts to pay debts that bankruptcy can discharge. This is a double error, because certain retirement accounts (e.g. ERISA-qualified) are among the assets that may be exempted from liquidation to pay creditors.

If you are contemplating filing for bankruptcy, a qualified bankruptcy attorney can explain how the timing of your case might be a significant issue. For example, it may be prudent to delay filing if there are likely more debts coming. Conversely, filing immediately may be best if a creditor’s lawsuit is anticipated. Make sure you have all the information you need before proceeding.

The Law Offices of James C. Zimmermann provides personalized service and effective representation for people throughout New Jersey facing debt problems. Call 973-764-1633 or contact us online to schedule a consultation. We have locations in Vernon, Wayne, Pompton Lakes, Hackensack and Nutley.