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Deciding to file for bankruptcy can be a tough time for both private individuals and business persons. Unfortunately, the emotional strain that it can put you under, also means you are more susceptible to making mistakes during the filing and bankruptcy process. The good news is with our expert guide below you can identify the most common mistakes as well as how to avoid them. Keep reading to find out what they are.
Why accurate bankruptcy filing matters
Before we look at the most common mistakes people make when they file for bankruptcy, it’s important to understand why these mistakes matter so much. First of all, a mistake in your bankruptcy process could leave you vulnerable to being accused of fraud, which can have some very serious consequences such as prison time. It is also possible that making a mistake during bankruptcy could lead to the repossession of items you have given to family or friends. Lastly, your bankruptcy petition could be denied leaving you in the original financial mess and having to restart the whole process, which can be incredibly time-consuming and stressful.
Not truly needing to file for bankruptcy
First, if you are considering filing for bankruptcy ist very important that you carefully think about both the positives and negatives of doing so. This is because bankruptcy will have long-term impacts on your personal and business financial health including not being able to get a mortgage, lease, or loan for several years after. With that in mind explore all the other options including debt consolidation, debt settlements, credit counseling, or selling your assets.
Not understanding how bankruptcy works
The bankruptcy process works by assigning you trustees who will examine your finances and identify assets that can be used to pay off your creditors. Understanding the role of the trustee and cooperating with them can make all the difference in the outcome of the bankruptcy process.
Waiting too long to file for bankruptcy
While sometimes not choosing bankruptcy is the best option, at others not choosing it soon enough can be a major mistake. This is because the longer you wait the more your debts and their interest will accrue, essentially increasing the debt you owe.
To that end, do explore the other options listed above promptly, and if you decide that you wish to go ahead with bankruptcy proceedings, act sooner rather than later.
Continuing to spend and accrue debt
When bankruptcy is on the horizon, you might as well run up as much debt as possible right? After all, it’s going to be mostly dissolved. Well, no this is not right, nor is it an advisable process either because by doing this you will make it look like you deliberately got into a situation of vast debt, knowing you would not be able to pay it back, something that can cause issues with creditors and with the bankruptcy process too. To that end, if you suspect that bankruptcy may be on the horizon, it’s important to avoid running up any new major debts.
Not finding an expert lawyer to work with
Another common mistake when it comes to bankruptcy is thinking that you can navigate this complicated process alone. Instead, you should work with the best bankruptcy lawyers you can find. The reason is that they will be able to help you with all sorts of things including advising you on which chapter to file, and while assets have to be declared.
Where possible, find a bankruptcy lawyer who can provide you with a personal and empathetic touch too. After all, the process can be tough emotionally, and surrounding yourself with supportive and expert help will make it go a great deal more smoothly.
Transferring assets to friends or family
While it may be tempting to give valuable assets such as cars, jewelry, property and antiques to your family or friends so the banks can’t ‘get a hold of them’ it is, in fact, illegal to do so and can get you into a whole heap of trouble.
Instead, you need to make sure you continue to hold on to all of your assets, and that you declare them as you work through the bankruptcy process.
Paying your debt with retirement money
You have money tucked away for your retirement, so you feel like you should use that to pay off at least some of your debt before you file for bankruptcy right? Well, actually this can be a very bad idea, the reason being that a bankruptcy trustee may be able to protect your retirement fund from seizure during the process, so it’s best to leave that money where it is for now at least.
