Bankruptcy is a legal remedy that can offer a fresh start and the opportunity to overcome substantial debt. However, people preparing to file for bankruptcy sometimes act in ways that they think will improve their financial positions but which actually may hurt them. Certain actions can reduce the protections available in bankruptcy. Others can result in the dismissal of the bankruptcy petition and disqualify the debtor from refiling, at least for a period of time.
These are some of the most common mistakes made prior to filing for bankruptcy, which you should carefully avoid:
- Failing to report all assets — When you file your petition, you are required to disclose all of your assets and income. Incomplete reporting, even if by oversight, can result in dismissal of your case and may disqualify you from seeking bankruptcy protection in the future.
- Transferring assets to insiders — You cannot give property to family members, friends or other close associates within a certain period of time prior to filing for bankruptcy in the understanding that they will later return it to you. These gifts may be considered fraudulent transfers that are voidable by the bankruptcy trustee.
- Taking on more credit card debt — You may think it’s acceptable to run up your credit card debt before filing for bankruptcy because you expect it will be discharged. However, a creditor may challenge any transaction made in the 90 days before filing as an abuse of the process, which means you may still be responsible for paying off that debt.
- Taking money out of a retirement account — Some debtors withdraw funds from retirement accounts, such as 401k’s, IRAs and pension plans, in order to pay off debts. This is a mistake for two reasons. Retirement accounts are exempt from bankruptcy and cannot be seized by creditors. Additionally, payments made to creditors shortly before filing for bankruptcy may be voided as preferential transfers.
- Waiting too long to file — You should consider filing for bankruptcy as soon as your debts have become unmanageable. If you wait until creditors start taking legal action to collect, the bankruptcy becomes more complex and potentially costlier to resolve.
- Not seeking legal advice — Bankruptcy is a complicated process that few people can successfully complete on their own. An experienced attorney can analyze your financial situation, discuss your legal rights and options and develop a strategy specifically tailored to your needs. Your attorney can also guide you around pitfalls that might otherwise block the path to a positive resolution of your case.
Jeff Field & Associates helps clients throughout the Atlanta metropolitan area in all aspects of bankruptcy proceedings. We have offices in Athens, Douglasville, Gainesville, Lawrenceville, Marietta and Scottdale. To schedule an appointment, call 404-381-1278 or contact us online.