Most people who file bankruptcy are doing so as a result of some life-changing event, such as a divorce, the loss of a job or serious illness. Filing bankruptcy can help them recover from the financial stress they have endured. However, hard working individuals often make common mistakes that can prevent them from receiving a discharge of their debts under bankruptcy.
Here are 9 mistakes that can cost you money, prevent you from eliminating your debts and, in some cases, are illegal.
#1 Withholding Information From Your Attorney
First and foremost, don’t lie or hide information from your attorney. Answer all the questions that you are asked honestly and completely. Tell your attorney everything, or you may be exposing yourself to major risks, including the loss of assets, the dismissal of your case and even criminal charges. Your interests can only be protected with complete honesty.
#2 Forgetting to List All of Your Debts
You should list all of your debts when you file for bankruptcy. If you neglect to list any debt in your bankruptcy petition, this debt will not be discharged and the creditor will be able to employ whatever collection measures are available to pursue repayment of the debt after your bankruptcy has concluded.
#3 Settling a Debt to Avoid Listing it in Your Bankruptcy
Don’t pay off the outstanding balances on your credit cards or other debts to avoid listing them in your bankruptcy. The creditor will find out about your bankruptcy and cancel your account anyway. And in the end, you may have paid off a debt that might have otherwise been discharged.
#4 Cashing in Your Retirement Account
Hold on to your retirement funds. Creditors cannot touch your qualified retirement account in a bankruptcy. As a general rule, you should stay away from using your retirement funds to pay off your debts as these funds can be very difficult, if not impossible, to replace before you retire.
#5 Making Large Purchases or Cash Advances on Your Credit Card Within 90 Days of Your Filling
Don’t run up your credit card bills just prior to filing bankruptcy. You may find yourself still responsible for those charges after your bankruptcy has concluded. Furthermore, running up your credit, when you know that you cannot afford to repay the debt, may be considered fraud and land you in jail.
#6 Making Preferential Debt Payments Prior to Filing Bankruptcy
It is not unusual for a debtor to prefer paying off some creditors before others. For instance, you may want to pay back your family and friends rather than your mortgage loan. However, some debts have priority over others and any preferential payments you make within 12 months of filing bankruptcy may be the subject of a lawsuit by your trustee to have those funds returned to your bankruptcy estate. So, if you decide to repay your family or friends while neglecting to pay other creditors, the bankruptcy trustee may sue them to recover those funds, which can cause undue stress and conflict in your relationships.
#7 Transferring Property Out of Your Name Prior to Filing Bankruptcy
As it is with making preferential payments, any transfer of assets that the trustee believes you have made too close to filing bankruptcy may be the subject of a lawsuit to return these assets to your bankruptcy estate. Furthermore, if your trustee views this as an attempt to frustrate or hinder your creditors, he may even bring fraud charges against you. Therefore, you should never transfer property to family, friends, a living trust, an LLC, or any corporation prior to filing bankruptcy without first consulting with your attorney.
#8 Receiving a Large Tax Refund During Bankruptcy
Your tax return money can be used by your trustee to pay off your creditors. So, if you are expecting a large tax return immediately prior to or during your bankruptcy, you should discuss with your attorney whether it would be wiser to delay filing bankruptcy until after you have received and spent your tax return.
#9 Putting Off Filing Bankruptcy
When you file your bankruptcy petition, an automatic stay of all collection activity will immediately go into effect. This means that your creditors will be required to cease any efforts to collect from you. This will give you the opportunity to get back on your feet without being harassed by creditors, and before you spiral further into financial ruin. So, seek help before the situation becomes desperately out of hand.
Filing bankruptcy is a serious legal proceeding and not just some opportunity to outwit your creditors. While is natural to be frustrated by the circumstance that led you into bankruptcy, don’t be tempted by these shortcuts. Instead, let your bankruptcy attorney help you make an honest assessment as to whether bankruptcy is the right course of action for you.