Don't pay back family members. The thing is that they can not be treated any differently than other creditors. As far as the law is concerned, relatives have the same legal status as every creditor that you owe. Therefore, relatives can not be treated differently than all of the other places. I know that stinks, but it's the law.
Don't liquidate your retirement account! They are usually exempt property in a bankruptcy regardless of what chapter you file, so it's unnecessary to do this. Some people liquidate and still owe massive amounts of money, and if you withdraw these funds early that makes you liable for taxes and penalties which might not be discharged in the bankruptcy.
Do not transfer property out of your name before you file for bankruptcy. This action can be undone if a fair price is not received, or if it were made with intentions to defraud, delay, or hinder a creditor. Friends and relatives also fall into this category.
Don't use your equity line of credit to pay off your debt. Under most federal and state law, you do have the option to claim exemption for the equity in your home. So you can go through bankruptcy and still be able to have this equity.
So basically, if you use your equity line to pay off debt or take out a second mortgage, you will basically be converting debt that would have been discharged in bankruptcy into debt which you will still need to pay so you can keep your home.
One Do: Always tell your lawyer the truth and let them fully know all of your concerns. Courts take their rules seriously and have the ability to file criminal charges if intention fraud is committed. And even if they don't go that far, they can refuse to discharge a particular debt, or simply dismiss the entire case.
Mallory McGuinness is employed by a debt collection company. She also does pieces on business and finance, the credit industry, and collection agencies
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