Common Mistakes Made Before Filing Bankruptcy
Sep 27, 2019
When you are faced with an unmanageable amount of debt, it is overwhelming and in that stressful time, mistakes can be made. Bankruptcy gets a bad rap; it is a great option for many to get out of debt and get a fresh start. In order to ensure your bankruptcy goes smoothly and helps you get that fresh start, avoid these common mistakes.
If you pay back family before filing bankruptcy, the trustee can go after them for that money. The payment would be considered a preference payment and family members are considered inside creditors and repaying them, instead of your other creditors, is not allowed in bankruptcy. The trustee can take the money you paid them and disperses it evenly to all your creditors.
Not being honest on the assets that you own is a big mistake. If you fail to list assets on your bankruptcy petition, or you transfer them to a friend or family member trying to hide them, you can lose the asset, not have your bankruptcy discharged and face criminal charges, fines or imprisonment. Hiding assets is not worth the risk, there are different deft relief options that may work better for your situation.
RACKING UP DEBT
Credit cards and payday loans can be discharged in bankruptcy but racking up debt right before filing bankruptcy is not a good idea. If the debt was taken out in the 90 days before filing bankruptcy, the creditor can object to the dischargeability of the debt. This means the debt will remain after the bankruptcy and cannot be written off in any future bankruptcy either.
If you have equity in your home, you may think taking a second mortgage to pay off your unsecured debts is the answer. However, you need to think about how you came to be in debt. Will you be able to afford a second mortgage payment? What if you or your spouse lose employment? Keep in mind you are trading unsecured debt for secured debt and if you can’t keep up with your payments, you will lose your home. Also, if you end up filing bankruptcy anyway, then you can no longer wipe out the debt without surrendering your home.
CASHING IN RETIREMENT ACCOUNT
Most retirement accounts are 100% exempt in bankruptcy. That means you get to keep all your retirement money for retirement. If you cash in those accounts the money may no longer be able to be protected. If you are thinking of using your retirement accounts to pay off your unsecured debt, check out our blog 401(k) Loan or File Bankruptcy?
WAITING TOO LONG
Sometimes you just don’t know what to do so you do nothing, or you rob from Peter to pay Paul. Unfortunately, your debts are not going anywhere, they are only going to grow larger, get sold to relentless collection agencies, and become wage garnishments. Don’t be afraid to investigate debt relief options as soon as you realize you are not able to keep up with your debts.
The best way to avoid mistakes in bankruptcy is to have an experienced bankruptcy attorney on your side. Pedersen Law Office, LLC offers free consultations and will meet with you personally to discuss your present circumstance, current assets, debts and income to find out what options are available for you. Our law office serves the communities of Appleton, Neenah, Menasha, Oshkosh, Green Bay and their surrounding areas.