We answer general personal bankruptcy and personal proposal questions on our Ask a Bankruptcy Trustee Blog. When we get a question that a number of people ask and/or a question we think will be of general interest we feature it on its own blog and give a more detailed explanation.

One of the questions we are frequently asked is how people can protect their assets from seizure in a bankruptcy; how a relative can be paid and not anyone else and other similar questions.

How to conduct yourself before filing bankruptcy or a proposal

Many people know they must file bankruptcy or a proposal but keep putting it off hoping for a change in circumstance or a miracle. If you find yourself in this situation it is important you conduct yourself properly concerning whom you pay and how you deal with your assets.

If you fail to do this you may put yourself in a position where you have your bankruptcy discharge postponed or denied and face severe fines by the court.

Many people ask how they can protect their assets from being seized and sold in a bankruptcy or if it is acceptable to pay a relative, for example, instead of a big credit card company.

The simple answer is you cannot protect assets from seizure or give preferred payments to relatives or anyone while on the verge of bankruptcy. Some people even consider “running up” their debt just before bankruptcy since it will be written off anyway. A word of advice: Don’t! Trustees in bankruptcy have extraordinary powers to recover preference payments and assets “sold” at below market value. Trustees in bankruptcy also have the duty to report such activities to the court where severe penalties are possible.

Some “don’ts”:
• Don’t make significant purchases on credit prior to bankruptcy or a proposal;
• Don’t make significant payments or payments to creditors out of the ordinary course of your payment history. Many people want to pay a relative, for example, ahead of a credit card company. Don’t do this. The law doesn’t distinguish between types of creditors and severe court penalties can be imposed;
• Don’t cash in RRSP’s or stocks on the eve of bankruptcy or a proposal;
• Don’t “sell” or transfer assets to a friend or family member;
• Don’t purposefully neglect to list some of your creditors. All debt must be listed.

Your attitude
The best way to look at an impending bankruptcy or proposal is that it is the law of the land and your right to get a fresh financial start by erasing most, if not all your debt while retaining certain assets specified by your province or territory of residence.

Accept this without guilt and without “beating yourself up”. At the same time don’t cheat. Play by the rules and your fresh financial start will come about smoothly, without stress and investigation and without guilt!

This entry was posted on Friday, June 23rd, 2006 at 8:07 am and is filed under Ask a Bankruptcy Trustee. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.