How to Avoid Common Mistakes When Filing for Bankruptcy

Anyone considering filing for Chapter 7 or Chapter 13 bankruptcy should consult with a bankruptcy attorney before doing so; however, it is also helpful to know some of the common pitfalls of filing for bankruptcy before proceeding.

California lawyer Cara O’Neill says that the timing of when you file for bankruptcy is very important. For example, if you know that you are about to receive considerable assets such as a tax refund, a large inheritance, or a lawsuit settlement, you should hold off on filing for bankruptcy, as these assets can affect whether you can be considered bankrupt.

Many people file for bankruptcy too soon. Keep in mind that a Chapter 7 discharge (wiping away of debt) can only happen once every eight years or six years after filing for Chapter 13. In the meantime, if you fall upon hardship such as eviction, foreclosure, unemployment, or illness, creditors can garnish your wages and seize property.

However, it is also possible to wait too long to file – for example, if a creditor has filed a lawsuit against you, it is best to file for bankruptcy before the lawsuit awards the creditor a money judgment. In most cases, filing for bankruptcy before the creditor wins the case will stop the lawsuit. A bankruptcy attorney is recommended to navigate this potentially complicated issue.

How you spend your money while filing for bankruptcy is also very important. Make sure not to pull from your retirement to help pay your debt, as retirement funds are usually protected in bankruptcy and you may be able to wipe out your debt by filing. You should also avoid paying off debts with relatives, friends, or creditors while filing, as any payments could be interpreted as selective repayments known as preferential transfers.

Obviously, it is best to avoid accruing new debt while filing. It is also best to avoid moving your assets around or trying to hide them. If you sell assets to help pay debt, that needs to be clearly documented. During this process, it is paramount to provide only truthful information, as failing to do so can land you a hefty fine or jail time.

Again, it is best that you speak with an experienced bankruptcy attorney if you are considering filing for bankruptcy. Adams Law is committed to serving the community in Miami Lakes, Coral Gables, Hollywood, Fort Lauderdale and West Palm Beach, Florida. For more information on how Richard Adams and his staff can be of service with answering any questions you have concerning bankruptcy, please click here.

Image: Bankruptcy Filing by Nick Youngson CC BY-SA 3.0 Alpha Stock Images