Common Bankruptcy Mistakes
Bankruptcy protection is a little like the protection offered by a seat belt and airbag – it may save you, but usually only if you follow the proper procedures. Unfortunately, some common bankruptcy mistakes can cost struggling petitioners the financial protection they desperately need.
Here are a few common bankruptcy mistakes and why you may want to avoid making them if you want your bankruptcy case to go as smoothly.
Running up credit cards or taking out cash advances just before filing bankruptcy.
Some people incur massive debt just before filing bankruptcy in a last-ditch effort to pay off creditors, but others aren't so scrupulous.
The bankruptcy court may assume that you ran up excessive debt after deciding to file bankruptcy because you assumed that the new debt would be discharged.
Generally, debt of this nature taken on 90 days prior to your bankruptcy filing is considered non-dischargeable and you'll be responsible for paying it back.
Repaying loans to family and friends.
This may seem counter-intuitive – after all, paying off debts is usually viewed as a positive move.
But bankruptcy courts treat all creditors equally, and showing a bias toward your loved ones is not tolerated.
If you've paid $600 or more to a family member or friend during the year prior to your bankruptcy filing, the bankruptcy court may be able to take that money back.
Tapping into your retirement account to cover your debts.
Many retirement accounts are protected by bankruptcy law, meaning that creditors can't seize your retirement funds when you seek bankruptcy protection.
If you choose to drain your account to pay creditors, though, you probably won't be able to get that money back – and you may still have to file bankruptcy.
Taking out a home equity loan to cover your debts.
While these are less available now than they were when the housing market was strong, home equity loans may still tempt some people struggling with debt.
But home equity loans are just another form of debt: money now in exchange for payments later. Most people aren't able to borrow themselves out of debt, and sacrificing your home (which is likely your most valuable asset) can be a costly move.
Concealing, transferring or destroying property to protect it from creditors.
Some people try to “give” cars, homes or luxury items to family members before filing for bankruptcy.
But, if the bankruptcy court finds that you did so in order to protect the property from a Chapter 7 liquidation sale to raise money for creditors, the transfer may be reversed.
Those who are really worried about losing non-exempt assets, may consider filing for Chapter 13 bankruptcy, which involves no liquidation.
Ignoring pending lawsuits.
Bankruptcy's automatic stay was designed to protect debtors from lawsuits, buy before you've filed your case, any court orders pending against you must be recognized and dealt with.
Ignoring summonses, liens or other legal concerns could lead to bigger problems down the road.
Providing incomplete or incorrect information to your bankruptcy lawyer.
You're required to swear to the accuracy and completion of the information contained in your bankruptcy petition – misstating information (including your list of creditors, your income, your expenses, etc.) may be considered bankruptcy fraud, even if the misstatement is the result of an honest mistake.
For this reason, it's important to ask your lawyer to clarify any points of confusion and provide details for any items that seem unclear.
The Bankruptcy Lawyer
Without guidance from a bankruptcy lawyer, making your way through a bankruptcy case can be difficult. You're expected to file vast amounts of paperwork, meet strict deadlines, adhere to rigid rules and fully understand the requirements of bankruptcy laws.
A bankruptcy lawyer can help you by making sure your case runs smoothly – that could mean less worrying about the deadlines and other confusing details that could mean the difference between a successful case and a dismissal from court.
Take advantage of Bankruptcy Central's nationwide network of sponsoring bankruptcy lawyers – get in touch with a sponsoring bankruptcy lawyer practicing near you today by filling out our free online form or calling us at 866-288-7281.