Filing for Chapter 7 bankruptcy can provide much-needed relief if you are struggling with excessive debt. However, any red flags in your financial history could allow the bankruptcy trustee to challenge your right to relief.
As you prepare your paperwork, keep an eye out for issues that might complicate your Chapter 7 case.
Large asset transfers
If you transfer ownership of high-dollar assets to friends or relatives right before filing, the trustee may claim you did so deliberately to shield those assets from liquidation. The court will scrutinize any asset transfers within two years of your filing date, which could cause the dismissal of your case.
Hidden assets and income sources
You must disclose all of your assets and income sources in the Chapter 7 paperwork, even if they are ineligible for seizure and liquidation. Deliberately concealing assets, offshore accounts, investment properties or side jobs from the court could constitute bankruptcy fraud. Fraudulent cases may face dismissal without discharging debt, plus you could face criminal charges.
Excess disposable income
The means test looks at your disposable income to determine if you qualify to discharge debt under Chapter 7 guidelines. If you have too much disposable income over the next five years, it could lead to a challenge in your filing. Be prepared to justify any gray areas such as fluctuating or seasonal income.
Carefully vet your filing for any red flags before submitting your petition and schedules to avoid complications. Being forthright from the start gives you the best shot at a smooth Chapter 7 process.