Filing for bankruptcy is a serious decision that can lead to a fresh financial start. However, it can be stressful and complex if not handled well. Mistakes can lead to delays, extra fees, or even dismissal of your bankruptcy case. That is why it is so important to do it cautiously and accurately.
Due to ignorance or fear, most people often make errors that worsen their financial situation. The good news is that you can avoid these traps and navigate the process smoothly with the right advice. Hiring a bankruptcy attorney can be a great assistance, as they will guide you through all the processes and avoid expensive errors.
So, to prepare you beforehand, here are seven common mistakes people make when they file for bankruptcy—and how you can avoid them. Knowing about mistakes in advance can save you time, money, and stress in the future.
1. Waiting Too Long to File
One of the worst things people do is wait too long to file bankruptcy. They will struggle with unmanageable debt for years, hoping their financial situation will improve. Unfortunately, this delay only makes matters worse.
As time passes, creditors will only get more aggressive with their collection efforts, such as wage garnishment, bank account levies, or even foreclosure on your home. These can make it even harder to recover financially. Instead of letting the situation spiral out of control, you must explore your options sooner rather than later.
If you are in over your head with debt and you don't know where to turn next, you can call a bankruptcy attorney to decide what to do. They can review your finances and guide you to the right choice before it is too late. Doing it sooner rather than later can help you get a fresh start and be in control again.
2. Hiding Assets or Income
Some believe they can protect their property or savings by hiding assets or not disclosing all of their income before they file for bankruptcy. This is a grave mistake that can have disastrous consequences.
Bankruptcy law requires full disclosure, and the court thoroughly scrutinizes all financial data. When they discover that you've hidden assets, you can be legally sanctioned, with punishments ranging from fines to even a dismissal of your case. Sometimes, it can even be prosecuted as fraud, which carries criminal punishments.
It is always best to be completely honest about what you have and how much you are earning. Attempting to conceal assets can ruin your chance of getting debt relief. A bankruptcy attorney can advise you on what must be disclosed and ensure all the necessary disclosures are appropriately made. With the proper legal counsel, you can navigate the process quickly and not make costly mistakes.
3. Running Up Debt Before Filing
You might be tempted to continue using credit cards or obtain new loans before filing for bankruptcy, especially if you have trouble making ends meet. Some individuals believe that they can rack up charges and then have them discharged in bankruptcy. This is a risky tactic that can backfire in a big way.
The bankruptcy court takes a very close look at recent financial transactions. They may consider it fraud if they determine that you've accumulated debt knowingly with the understanding that you could not repay it. Thus, those debts may not be discharged, and you'll remain liable even after filing. In some cases, it can even lead to legal consequences.
4. Filing Under the Wrong Bankruptcy Chapter
There are different types of bankruptcy, and you must choose the right one. The most common ones for individuals are Chapter 7 and Chapter 13. They serve other purposes, and the incorrect choice can lead to either unnecessary financial suffering or a longer recovery.
Chapter 7 bankruptcy is generally the faster option because it wipes out most debts instantly. However, depending on your financial situation, you may have to give up some property, such as valuable property. It is the best option for those with little or no disposable income and cannot afford a repayment plan.
On the other hand, Chapter 13 bankruptcy allows you to keep your property, but you must repay part or all of your debts over time according to a planned schedule. This is ideal for people with a steady income and wanting to get caught up on overdue payments without giving up their property.
5. Failing to List All Debts
When filing for bankruptcy, you must list all your debts. Some people forget or knowingly leave out debts, which is a mistake.
If you don't list a debt, it may not be included in your bankruptcy case. You could still owe it in the future. Go over your records thoroughly to make sure nothing is left out.
6. Not Taking the Required Credit Counseling
You must complete credit counseling before filing for bankruptcy. It's mandatory by law. If you don't, your case can be dismissed.
The counseling informs you about your finances and decides if bankruptcy is the best option. A bankruptcy attorney may help you in finding an approved counseling agency.
7. Handling Bankruptcy Without a Lawyer
Others try to file for bankruptcy on their own. This is risky. Bankruptcy laws are complex, and mistakes can be costly.
A bankruptcy attorney knows the process and can help you avoid errors. They make sure all documentation is correct and that you follow the law. An attorney can also reduce stress during this stressful time.
Final Thought
Bankruptcy is a way to help people start fresh. Mistakes, however, can worsen the scenario. If you are considering bankruptcy, avoid these common errors.
The best way of protecting yourself is to work with a bankruptcy attorney. They will guide you through the process and help you make the right decisions. Don't wait—get the help you need today.
