What you CANNOT do when in bankruptcy in Colorado

Just as I advise clients as to what is permissible when filing for bankruptcy in Colorado, it’s equally important to discuss with debtors in Colorado what is not allowed during the bankruptcy process.

-Do not make payments on loans to preferred creditors such as friends or family to the detriment of ordinary unsecured creditors, such as credit card companies.  This is called an insider preference and the bankruptcy trustee in Colorado can sue the recipient of such payments on behalf of the other unsecured creditors.

-Do not transfer property to family or a friend in contemplation of filing bankruptcy with the expectation of later receiving the property back after the case is closed.  This is called a fraudulent transfer.  (Specifically, do not transfer property to a relative within a year before the filing.)

-Don’t pre-pay balances owed to any secured or unsecured creditor immediately prior to filing for bankruptcy.

-Don’t sell your property for less than fair market value.  The balance may be treated as a fraudulent transfer.

-Don’t purchase any luxury (e.g. non necessity) items, particularly on a credit card, immediately before the case is filed.

-Don’t withdraw any cash advances from a credit card immediately before bankruptcy.

-Prior to making a withdrawal or borrowing from an ERISA qualified retirement plan, always be aware of any tax consequences that the discharge will not eliminate.

-If you anticipate receiving an inheritance or Federal/state tax refund, first consult your Denver bankruptcy lawyer as the timing of filing may be an issue.

-If you will be getting married before filing for bankruptcy, your lawyer will need to know your spouse’s income, as this income may push a chapter 7 into a chapter 13, or make an contemplated chapter 13 plan payment even higher.

-Know that some unsecured debts may be not discharged.  Many tax debts and domestic support obligations cannot be discharged, and student loans are almost impossible to discharge, absent extreme hardship.

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