5 Mistakes you should avoid or You Might not be Able to File Bankruptcy
These common mistakes can prevent you from getting the full benefit of filing bankruptcy. The filing of bankruptcy is governed by Title 11 of the United States Codes. Oftentimes, what makes sense in bankruptcy world does not make sense in everyday life.
1. Selling Assets In An Attempt To Get Out Of Debt
What assets you can keep in bankruptcy is governed by the specific statutes of each state and the Bankruptcy Code known as “exemptions.” This sets forth rules regarding what property you can keep through bankruptcy. Oftentimes, potential bankruptcy filers liquidate their 401(k), or borrow against it, or sell their assets. Carefully consider if you can get out of debt by taking such measures. If at the end of the day, a potential bankruptcy filer still cannot get rid of debt or get it down to an amount that you can deal with, it does not make sense to get rid of assets that would otherwise be protected in bankruptcy.
The best time to consult with a bankruptcy attorney is when you are struggling to stay afloat and simply do not see a way to get rid of all of your debts. Remember, filing for bankruptcy is a tool to shed legal responsibility to repay the debt. Nothing in the bankruptcy code prohibits a potential filer from voluntarily repaying the debt after bankruptcy.
2. Selling Assets For Less Than The Fair Market Value
Another mistake potential bankruptcy filers often make is attempting to hide or get rid of assets for the fear that they will lose the asset through bankruptcy. Any transfers of assets prior to bankruptcy must be disclosed in the bankruptcy petition. Remember, bankruptcy can also protect these assets it is not all about giving assets to creditors.
3. Preferential Repayments To An “Insider”
It’s a natural instinct to want to pay back family members, or business associates or other people whom potential bankruptcy filers have a close connection to before paying back Discover, Chase or American Express. However, in bankruptcy, this is considered an insider transfer. It must be disclosed on the bankruptcy petition and the Trustee can go after the insider for the money if it was repaid within a certain time prior to filing you’re a bankruptcy petition
4. Incurring More Debt In Anticipation Of Bankruptcy
This can happen in two ways. One by tapping into lines of credit or other sources of credit you may have (for example, your home equity line of credit). The potential bankruptcy filer may unwittingly convert an unsecured debt into secured. Remember that when you file bankruptcy, the duty to repay the debt on a secured debt is discharged, however, the creditor still has a security interest in the property, and can exercise its right to foreclose or repossess. If a potential bankruptcy filer maxes out his or her credit card, takes cash advances, takes a trip to Paris, with the anticipation of filing for bankruptcy, the potential bankruptcy filer may be committing fraud. Bankruptcy fraud is a felony punishable by prison time. Credit card companies monitor its users for “abuse” and can object in the debtor’s bankruptcy proceeding. This will almost certainly mean additional attorney fees and worse yet, non-discharge of your debt.
5. Not Being Honest
Potential bankruptcy filers are hiring attorneys to be able to spot potential issues and figure out solutions. The attorney is your allie and he or she should be treated as such. Maybe you’re simply embarrassed by something in your financial history, or there is something you’ve done that you do not want anyone to find out. The only issue your attorney cannot assist potential bankruptcy filers with is one he or she does not know about.
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This content is not meant to constitute advice of any kind, including without limitation, legal advice of any kind. If you require advice in relation to any legal matter you should consult an appropriately qualified lawyer.