Bankruptcy Filing Mistakes
Considering bankruptcy? Don't make a mistake before you even get started. It's easy to make a mistake if you don't know the ins and outs of bankruptcy law and the exemptions you have in your state. Even innocent mistakes can be costly.
Talk to a bankruptcy attorney in your state to learn about the requirements and restrictions before taking any action.
Avoid these common bankruptcy mistakes:
DON'T run up your credit cards or take out cash advances. Many consumers think that since their debts are going to be discharged, it doesn't matter how much they charge today. Big mistake! Certain debts incurred within 90 days before filing for bankruptcy are presumed to be non-dischargeable. That means that if you use your credit cards recklessly before bankruptcy, you may find yourself obligated to pay those charges.
DON'T transfer property out of your name. Some people think they can protect property like homes, cars, jewelry and cash by giving it to a family member before filing bankruptcy. A bankruptcy trustee may be able to reverse a transfer of property if it was made in an attempt to hide assets from your creditors. It's often unnecessary, anyway, since exemptions may protect property like your home, your automobile and your wedding rings.
DON'T cash in your retirement account unnecessarily. Most retirement funds in qualified ERISA accounts are protected, and you may be able to discharge your debts and keep your retirement account. Don't liquidate in an attempt to reduce assets-or gut your retirement account in a futile attempt to catch up bills that you can't get under control.
DON'T ignore pending lawsuits. Many debtors assume that if they're planning to file bankruptcy, it's not important to respond to or appear in court for pending lawsuits. Until your bankruptcy case is filed, any pending legal action will continue to move forward, and it's important that you protect your rights--and protect your property from liens--until a stay from the bankruptcy court takes over.
DON'T pay back loans to friends and family while neglecting your other creditors. In bankruptcy, you can't choose to treat one creditor better than another. All creditors are entitled to a proportionate share of whatever funds are available to pay your debts. In fact, if you've made payments to a family member within a year before filing bankruptcy, the bankruptcy trustee may be able to take action to recover that money from your family member and distribute it proportionately among all of your creditors.
DON'T withhold information from your bankruptcy lawyer. Often, clients think they have good reasons for concealing information from their bankruptcy attorneys. You may think that your lawyer won't understand your situation, or that by keeping quiet about an asset or an account, you'll be able to keep more. Lack of information will tie your attorney's hands and create serious risks. You could lose assets, have your bankruptcy case dismissed, or even face criminal charges. And, your attorney may withdraw from your case if you're dishonest with him. Only with complete information can your attorney effectively protect your interests.
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The above summary of bankruptcy law is by no means all-inclusive and is not legal advice. Laws may have changed since our last update. For the latest information on bankruptcy laws, speak to a local bankruptcy lawyer in your state.