You have been struggling with debt, and you believe bankruptcy might be the answer to your problems. If you are considering filing for bankruptcy, refraining from racking up any additional debt may be a sound move. You want to do all you can to give your bankruptcy the best chance of succeeding, and incurring more debt just before you file may cause problems.
As Kiplinger explains, accumulating more debt in the 70 to 90 day period before you file may create issues with certain parties involved in the bankruptcy process. These issues could complicate your bankruptcy or derail your bankruptcy petition entirely. Also, acquiring more debt might cause you an unnecessary loss of assets.
Creditors may object
Since a bankruptcy judge can discharge debt, your creditors will likely worry that they will lose out on collecting outstanding bills from you. Expect that your creditors will look for any sign that you are abusing the bankruptcy process. If you spend a lot of money 70 days before you file for bankruptcy, your creditors might object to your bankruptcy filing on the grounds of bankruptcy fraud.
Your trustee may undo your transactions
The timing of your transaction may also cause problems with your trustee. A bankruptcy trustee has certain powers to undo your transactions if they occur within 90 days prior to your bankruptcy filing. For instance, if you transfer ownership of property or an asset to a relative, your trustee may treat it as a fraudulent act and undo the transaction.
You might lose retirement money unnecessarily
Some people tap into their retirement accounts to try to deal with debt as an alternative to bankruptcy. Doing so might deplete your retirement money when you do not need to lose it. For one thing, bankruptcies tend to protect retirement accounts, so you should hang on to them once your bankruptcy is complete. Also, there should not be a need to use retirement money to pay off debt that your bankruptcy judge will likely eliminate.