There are many mistakes made when a person is filing bankruptcy. Most of the time they’re common mistakes that can be avoided by talking to their attorney openly and honestly.
Not Considering Alternatives
Bankruptcy should be a last resort. It’s often not the best resolution for everyone. It’ll depend on your specific situation based on the nature of the debt as well as the details of your ability to pay those old debts. An experienced attorney can help you make the decision regarding bankruptcy like whether it’s your best option.
Filing for the Wrong Bankruptcy Type
Once it’s been decided that bankruptcy is the right option for you, it’s important to understand the two types of bankruptcy. They differ tremendously, and you’ll need to make a choice before filing. There is Chapter 7 and Chapter 13 bankruptcy, which is chosen based on a few factors like the size of the debt, the person’s current assets and the marriage status. This is another situation where it’s best to talk to an experienced lawyer.
Keeping Assets Hidden
During the filing stage of bankruptcy, your attorney will ask for a list of all your assets. Every state allows you to exempt one property, which is a problem if you haven’t listed the one you’d like to exempt. If it’s found later that you excluded assets from your disclosure, you could be in trouble. You’ll lose your chance to claim the exemption too.
Spending Your Tax Refund
When declaring bankruptcy, any money that you make will be divided up for your creditors. This includes any large sums of money like tax refunds. You might be able to keep a partial amount of the refund, but you’ll have to discuss it with your attorney to learn how much you can keep. Many people make the mistake of thinking that they’re entitled to keep the entire amount, which isn’t true at all.
Gaining Debt Before Bankruptcy
Some people who know they are declaring bankruptcy will incur more debt because they know it’ll be washed out with all the other debt. The court does not like to see big purchases on credit cards or loans within 90 days of filing bankruptcy. All recent credit card use should be discussed with your attorney, so he or she can try to mitigate the debt with the court.
Giving Assets Away
It can be scary to consider losing assets you’ve worked hard to obtain, but you can’t give them away before the bankruptcy. This is especially true with property since the court can see that it was transferred. The court can seize the property from the person it was transferred to and sell it for the money to pay creditors. When the court sees this type of transaction, they lose faith in the person too. They’ll start to look into all transactions closely and not trust the person.
Paying Loans Before Filing
Before a bankruptcy, you might want to pay back a loan from family. Unfortunately, the court can take that money back from the family member and apply it towards other creditors. The court wants all creditors treated the same as well as being treated fairly, which means that family members will have to stand in line for their loan repayment.
Don’t Leave Bills Behind
You want to take the time to list every single bill you have in your name. You and your lawyer can decide which bills should be scheduled. A credit report should be pulled to find collection agencies too. Sometimes the original creditor might not cancel a collection, and you’ll need to contact the agency instead.
Waiting too Long
Many people try to bravely pay off their creditors. They want to avoid the embarrassment of admitting they are in too deep. Unfortunately, this leads to checks that bounce, eviction or foreclosure and wage garnishments. It’s often better to file before things get too dire. Even big companies have had to file bankruptcy.
Filing for bankruptcy can be a scary prospect, but it’s important that you’re honest with the courts. Don’t try to hide property or assets during the process. Talk to your attorney if anything is unclear too.