Filing for bankruptcy is a stressful experience, especially for individuals with financially dependent loved ones. When people feel overwhelmed or lack clear information, mistakes can occur that lead to delays, penalties, or even dismissal of a case.
To avoid these pitfalls, beware of the following mistakes and learn practical ways to avoid them.
1. Not Seeking Help Fast
Most people wait too long until they realize the situation is heading toward bankruptcy and they need urgent help. Meanwhile, they miss repayment due dates. It’s because of a poor grasp of reality, denial, or the confidence that they can fix things soon.
They continue to use their last bit of funds in their credit cards and retirement savings and borrow from their network until they realize they are penniless and can’t repay any debt.
As a result, during the unnecessary delay, the value of the debt increases, some lenders may file lawsuits against you, some may legally force your employer to withhold wages, and others may take over your collateral property.
How to Avoid This Mistake
The sole way to avoid delaying seeking help is to be more cautious about your frequency of missing a repayment or using a credit card.
If these happen too frequently and you’re based in Virginia, consult a qualified local bankruptcy attorney as early as possible. The right professionals will guide you so you can navigate through debts better. Make sure you don’t wait until you experience legal actions from moneylenders.
2. Incorrectly Filing for Bankruptcy
Unknown to many, there are different kinds of bankruptcies. The most common options for individuals include:
- Chapter 7, which involves unsecured debt resolution with potential asset liquidation.
- Chapter 13, which helps you find a suitable repayment plan for a fixed time period.
If you don’t file for the right bankruptcy, you face unnecessary complications. You may lose property unexpectedly, have to deal with nearly impossible repayment plans, or have your case dismissed.
How to Avoid This Mistake
Seek a legal professional before filing for bankruptcy. They will evaluate your income and existing assets and find the best option accordingly.
3. Not Disclosing the Right Information
Some people fear disclosing their true finances when filing for bankruptcy. They assume they are losing their assets and income after sharing all details. However, complete transparency about financial details is important.
Whether you intentionally or mistakenly hide side income or assets, professionals will consider it fraud. This can result in discharge denial, penalties, and case dismissal.
How to Avoid This Mistake
Be transparent about your assets, all forms of primary and side incomes, financial activities, money transfers, and debts. Provide complete and accurate financial information to show transparency. Don’t wait until trustees find something hidden.
4. Property Transfer Before Filing
Some people try to circumvent the process by transferring their existing assets (liquid money, property, car, or jewelry) to their loved ones’ names. They assume that since the asset is no longer theirs, the system can’t seize them.
But the reality: The court will investigate your latest financial actions. Courts may review and scrutinize transfers made shortly before a bankruptcy filing. If necessary, they will reverse these actions and then proceed with the case, taking all your assets into consideration.
How to Avoid This Mistake
Once you understand you’re close to bankruptcy, don’t transfer, gift, or sell assets. Contact a bankruptcy lawyer if it’s necessary and reasonable. In that case, they help you perform the transfer and ensure the court knows about your harmless intent.
5. Not Stopping Credit Card Usage
Some people take loans and max out their credit cards before filing for bankruptcy. They assume that all debts will be discharged.
In reality, this looks like a fraudulent move, especially if you spend on nothing essential (healthcare, food, shelter, or academics).
How to Avoid This Mistake
When you consider filing for bankruptcy, that’s your cue to stop piling debt. Don’t get loans or use credit cards for luxury or non-essential amenities.
6. Not Knowing which Debts are Dischargeable
Some assume bankruptcy discharges all debts. This is a common misconception. Taxes, alimony, child support, and student loans don’t disappear.
How to Avoid This Mistake
Consult your attorney to know which debts are not dischargeable. Set realistic expectations and plan finances accordingly.
7. Missing Significant Steps
In a bankruptcy filing, you need to complete a credit counseling course before the filing and a debtor education course post-filing. Otherwise, you face delays or debt discharge challenges.
How to Avoid This Mistake
Let an experienced attorney guide you so you can complete all courses from approved providers on time. Keep all documents safe and submit the necessary ones fast.
Conclusion
Bankruptcy is a legally structured process with strict requirements and long-term implications. Working with an experienced attorney early can help individuals avoid costly mistakes. This guidance can help individuals plan efficiently and recover financial health with minimal blow to assets.
