There are a lot of reasons that good, responsible, and honest people choose to pursue a bankruptcy case. Every year, one million families make bankruptcy claims as a result of outrageous medical bills. Obviously, every penny that it costs to provide a loved one with the medical care they need is worthwhile and not an irresponsible choice, but the money doesn’t just appear to pay the bills afterwards. Our recent financial resection shows us that even the most stable careers can evaporate with a little poor luck.
When you are facing a personal bankruptcy case, you might feel like you’ll never recover. The truth is, bankruptcy cases are not the end of the road, just a speed bump along the way if you do it right. If you handle your bankruptcy case poorly, the result is far more painful for you. If bankruptcy is on your horizon, make sure to avoid the serious mistakes.
Five Big Mistakes While Filing Bankruptcy
- Being Dishonest or Not Providing All of the Information
Your bankruptcy paperwork is a legal document; anything untruthful that you provide is considered perjury. Your bankruptcy lawyers and creditors are going to dig deep in to your personal records while processing your bankruptcy. Any inaccuracies will be uncovered eventually and will come back to haunt you. Best case scenario, you would be subject to additional fees to correct your mistake. Worst case scenario, you could be criminally prosecuted for lying under oath.
- Transferring Assets
When you owe more than you could ever pay back, your Chapter 7 bankruptcy will use the assets that you have to pay back some of your debts, and then write off the rest. Some people think they can beat the system by giving a friend or relative a valuable asset they have, so that they won’t lose it in the bankruptcy case. However, your creditors will find out about any assets that you’ve transferred to another owner in the past 12 months (or longer) and have the ability to reclaim them. Once again, this will be used against you and will make the bankruptcy process far worse, if not lead to it being denied altogether.
- Paying Some of Your Creditors
Let’s say that you owe a family member a significant amount of money and you of course want to make sure they are paid back before the rest of you debts are satisfied with what assets you have. Do not cash in your 401(k) (or use any other asset) to pay them back before filing bankruptcy. Your creditors will catch this and reclaim the payment from your beloved family member so that it can distributed fairly between creditors.
- Neglecting Your Bills
If you know you’re going to be filing bankruptcy, you might be tempted to abandon your debts before the bankruptcy is done. They’re going to take what you have and write off the rest eventually, what difference does it make now? Actually, it makes a huge difference.
When your debts go into collections, your debtors can take action to recover the amount you owe. Those actions include garnishing your wages, or taking your home and car away (which you may be able to hold onto through your bankruptcy, depending on how you file). Once these judgements have been set into motions, they will not be reversed through your bankruptcy.
- Spending Money
When you know you’re going to be losing everything, it might be tempting to spend the money you have before it is taken from you. This is a bad idea. If you take a shopping spree right before going into bankruptcy, your creditors can reclaim anything you buy (best case scenario); this could also be cause for your case being declined altogether.
In some circumstances, doing this could send you to jail. Let’s say you take a Hawaiian vacation before filing bankruptcy. Your vacation can’t be repossessed, but a case could be made that you took out the debt with no intention of repaying it. This is called fraud and you could be criminally prosecuted for it.
If you are considering bankruptcy, there is a right and a wrong way to go about it. Doing it the right way will get you over the hurdle and back on track the quickest.