7 Most Common Mistakes That Lead To Bankruptcy
The actions an individual takes leading up to filing bankruptcy can drastically affect his ability to get a “fresh start.” By avoiding these seven mistakes, you will not only travel through the bankruptcy process more successfully, but you will also come out the other side in a better position.
- Running up more debt on credit cards: It’s never a good idea to use your credit cards once you have made your decision to file for bankruptcy. Consumer debts incurred for luxury goods and services owed to a single creditor in excess of $650 within 90 days of filing are presumed to be nondischargeable, meaning you may be responsible for paying off those debts even if you are filing for Chapter 7. Cash advances of more than $925 within 70 days of filing are also presumed to be nondischargeable and may be found to be due and owing.
- Repaying a family member: With regard to repaying debts, you cannot treat your family member any better than you would treat an ordinary creditor, meaning it’s a bad idea to pay off family members before you pay off your creditors. If you make the mistake of paying off a family member before a creditor, a bankruptcy trustee can reclaim the repaid amount within one year of filing for bankruptcy.
- Liquidating your retirement: Qualified retirement accounts are generally protected from your creditors, even if you are filing for bankruptcy. However, many individuals mistakenly drain their retirement accounts in a futile attempt to pay down credit card debt. By doing this, you are taking exempt funds and making them lose their exemption status.
- Transferring property out of your name: A bankruptcy trustee can undo a transfer of property that previously belonged to you. This can occur if the transfer was made within two years of the filing of bankruptcy with the intent to hinder, delay or defraud a creditor, or for less than adequate value in return.
- Taking out another line of credit or a second mortgage: Don’t take a loan against your real estate in an effort to reduce the equity. You can often file for bankruptcy and not lose this valuable asset. If you take out a second mortgage to pay credit card debt, you may be putting your house at risk.
- Failing to appear at court proceedings: If there’s a collection case pending against you in state or federal court, don’t assume that you can avoid the court process simply because you’ve decided to file for bankruptcy. Until your bankruptcy case is filed, a collection case continues and you may be required to go to court anyway.
- Failing to tell your attorney the truth about your situation: Your attorney is your greatest ally when filing for bankruptcy. But an attorney can only give advice based on the information you provide. Failing to tell them the whole story about your assets can lead to the loss of those assets, the denial of your bankruptcy case, fines, imprisonment or all of the above.