Mistakes to Avoid When Filing for Bankruptcy
While it is not most people’s first choice, filing for bankruptcy can help those who find themselves in dire situations to get back on their feet financially. But the simple act of filing for bankruptcy does not completely erase a person’s problems. When bankruptcy is not filed accurately, or a person behaves in a seemingly innocent way, the courts may deny the bankruptcy petition.
This is why it is so important to know the mistakes to avoid when filing for bankruptcy. Avoiding these mistakes will prevent a person from falling back into debt shortly after receiving protection. And more importantly, help ensure the court grants them the protection bankruptcy can provide.
Repaying friends and family
After filing for bankruptcy, it can be tempting to still repay friends and family members that have helped financially or provided a loan before bankruptcy was filed. But after filing for bankruptcy, doing so can actually be damaging.
This is because legally speaking, friends and family have no more protection from a default on a loan than another creditor does. If family and friends are paid back after filing for bankruptcy, the bankruptcy trustee can force them to repay the money to the trustee. It will then be redistributed to all creditors in the same class.
While it may seem like the right thing to do to pay back family and friends, it is a mistake often made when filing for bankruptcy.
Taking on more debt
It is understood by the courts that when a person has reached the point of filing for bankruptcy, they have come to a point in which they have no other options. And hopefully, they have learned from that. When an individual that has filed for bankruptcy takes on more debt, even by making a small payment on a credit card, it can hurt a petition’s chances.
This is a mistake to avoid after and before filing for bankruptcy. If someone incurs more debt 90 days within filing for bankruptcy, the court may deny the petition, leaving the individual still obligated to repay all creditors.
Withdrawing assets from retirement accounts
While courts may require that an individual still repays some debts, as much as they are able, retirement accounts are usually protected in bankruptcy procedures. Sometimes people withdraw from these accounts in order to help repay debts, but that can actually backfire.
Some assets may need to be liquidated in order to repay certain creditors. Because of that, they may transfer property out of their name to protect it. By legally giving it to another person, individuals often think it cannot be seized as part of the bankruptcy process. But that is not necessarily true.
When property has been transferred during the bankruptcy process, the trustee can still take it from the person it was transferred to, or the one that transferred it. It is best to hold off on transferring property until speaking to a bankruptcy lawyer.
Make Sure To Avoid These Moves When Filing for Bankruptcy
There are many mistakes that can be made when filing for bankruptcy. And they can all hurt a person’s chances for protection, and even become complicated for their friends and family. Before filing for bankruptcy it is always best to let a bankruptcy lawyer review your case to ensure that no mistakes are made along the way.