Bankruptcy is the best solution to overcome financial stress and breathe a sigh of relief. However, the period between deciding and filing for bankruptcy can be overwhelming and during this time, debtors are most vulnerable to their creditors. Under pressure, one is more likely to take actions in a certain way which can be very damaging and costly.
Financial mistakes committed unknowingly or accidentally can impede the bankruptcy case and sometimes leads to penalties. Therefore, it is important to handle these financial matters cautiously with the bankruptcy attorney and by avoiding the following common mistakes before filing the bankruptcy.
Lying or hiding assets
A ‘means test’ is included under Chapter 7 of Bankruptcy Code which requires to disclose all the assets, property, and income to determine the capacity to pay back to the creditors. If some information is hidden or lied about to qualify the case, it can lead to dismissal of the petition as the Bankruptcy trustee has access to all the financial records and it is very unlikely the deceits would go unnoticed.
Leaving certain creditor off the list
At times people leave some creditors as they want to keep them out the bankruptcy process or some can get excluded by error, either way, it’s a mistake to do so. Keep in mind, that all the creditors are required to be mentioned in the bankruptcy filing else it may result in dismissal of the case. Even family and friends also are included in the list if the debt is owed to them. To ensure complete inclusion of the creditors, go through the bills and pull all the three versions of the credit report.
Paying some creditors or family members before filing
Some debtors try to pay few unsecured creditors in full before filing the bankruptcy case which can lead to ‘clawback lawsuits’, in which the court representative can sue the entity to whom the debt is paid to get the money back as it is considered to favoring one creditor over another. Even paying the debt to your parents, family or friends immediately before filing the petition can be considered as ‘preferential payments’ and the bankruptcy trustee can disallow it. So, avoid making such mistakes as this will only worsen the case.
Taking new debt just before filing
Accumulating new debt right before the bankruptcy is to be filed can be considered as fraud by the Court. Even purchasing luxury items, taking out sizeable cash advances on the credits, lavish expenditure in the months leading to bankruptcy can be fraudulent and can cause the creditor to protest the bankruptcy petition. It is wrong to run up the debt with the intention to ditch it. So, it is wise to suspend all the debt once it is known that bankruptcy is the step needed to be taken.
Draining Retirement funds to pay debts
It is not a good idea to raid 401(k) or the IRA retirement account to pay off credit bills, medical bills or any other debt. When the retirement funds are drained not only the present balance is lost but also the future interest earnings capability. More importantly, though the retirement accounts, pension plans, Roth IRS, Keogh plans, SEP and Simple IRAs are exempted from the bankruptcy case. These cannot be seized by any of the creditors or trustees, so do not touch them.
Bankruptcy is a life-changing experience, and it would be a mistake to wait too long to file as the debt will be piling. Therefore, do not delay and be truthful about everything with the bankruptcy attorney who knows all the subtleties to go through the process successfully. Every cent count when trying to get off the debt, thus do not let some mistakes to rob off the fresh financial start.