Most of our Escondido readers probably think that, if they are in the financial position where they need to consider filing for bankruptcy, they have probably already made too many mistakes to justify. However, anyone who is familiar with previous posts here knows that is not always the case. People find themselves filing for bankruptcy for many different reasons, including the sudden onset of medical costs or the loss of employment. Personal bankruptcy is not always about irresponsible spending.
A recent article noted that, despite a person's financial troubles, there are some moves that should be avoided in the run-up to a bankruptcy filing. First, although monthly payments should continue to be made if possible in the time before a bankruptcy filing, it is important not to pay more to one creditor over another. This could be considered "preferential transfers" once the person actually files for bankruptcy and this can start a whole new set of problems.
Next, don't rush to max-out your credit limits on any credit cards that still have a usable balance. If you know that you are going to file for bankruptcy and you engage in this kind of behavior, it could be considered fraud. Why? Because you essentially took out a loan without any intention of paying it back.
Lastly, some people may feel so obligated to their creditors that they take money from their retirement accounts to pay down debt. This can be a worrisome financial move, because in a Chapter 7 bankruptcy the filer is usually able to keep their retirement savings intact.
Source: The Huffington Post, "Here Is Exactly Why People Who File Bankruptcy Are Smart," Steve Rhode, June 30, 2015