Make the bankruptcy process easier for yourself by avoiding these mistakes. Although we can work around most of these mistakes, why dig a deeper hole before you file?
Anything You Do Shortly Before Filing Bankruptcy Is Looked At Very Carefully
If you think that there’s even a 1% chance of you filing bankruptcy, leave everything the way it is right now, and go get a free, initial consultation. Too often, I see good-minded people making there situation worse by some of the things that that do just before coming to see me for a free, initial consultation.
Getting A Home Equity Loan To Pay Bills Instead Of Filing Bankruptcy
Your house is not an ATM machine, and you can’t borrow your way out of debt! Sure, you might have a lower payment, but you can lose your home if your income changes and you can’t pay the loan.
(If you can’t pay your credit cards, they can harass you but they can’t take your home.)
Cashing-In Your IRA Or 401(k) Instead Of Filing Bankruptcy
Your retirement is exempt, which means creditors can touch it. So, why give it to them? Keep it; you’ll need it.
Also, the only thing worse than filing bankruptcy is clearing out your retirement money to pay some of your bills, then having to file bankruptcy to handle the rest of your bills.
Waiting Too Long
It’s human nature to put off unpleasant events, but the best time to handle debt problems is when things are not going your way, financially. If you wait until you have more income, it will cost you more to get out of debt. Take advantage of your bad financial times by getting a fresh start.
Here’s a case in point: I had a lady that came in for a debt consultation after her divorce was final. She qualified for a Chapter 7 bankruptcy, where there is no payment to a trustee, but she chose a different option: doing nothing.
Three years later, she came in for another debt consultation because her situation changed: she was getting married in 2 weeks! She qualified for bankruptcy, but this time it was a Chapter 13 that required a plan payment of $750 a month for five years. Why? Even though her new husband didn’t file bankruptcy, we have to consider all household income. Basically, by delaying the inevitable, she brought her old debt problems into her new relationship.
The lesson here is to resolve your debt problems while “you’re down.” If you wait until you “get on top of your game,” then it is going to cost you more.
Here’s a common situation: I get lots of people that come in for a debt consultation after they have ignored a credit card lawsuit, which resulted in a judgment being issued against them. They come in looking for answers because the cash in their bank account was garnished by the creditor that obtained the judgment. Most often, had the person come in when they first got sued, we could have stopped the lawsuit and protected the cash.
The lesson here is that “doing nothing” can make the problem bigger.
Failing To List Everyone You Owe
You must list everybody you owe, then you get to choose the ones that you want to keep. If you don’t list a creditor, then you will still owe the creditor.
Failing To List Everything You Own
Tell your lawyer about everything you own, even if you think it is “exempt” or if you want to “keep it.”
List It, Or Lose It! If you fail to list it, then it’s not yours after the bankruptcy case is over.
Let’s say you have a car accident claim, but you don’t list it. Well, after the bankruptcy case is over, you lose any right to assert that claim.
A case in point: I filed bankruptcy for a client, and he listed a local credit union as one of his creditors. About 30 days later, I was told by a local credit union representative that there was a “problem” with the $7,000 that my client had in a savings account at that credit union.
I had no clue that my client had a savings account at the credit union. When I asked my client about it, he said “It’s not my money, it’s my sister’s money. It’s just in my name, that’s all.” Well, it was his money since it was in his name, and it was his “$7,000 problem” since he didn’t list it.
Keeping More Debt Than You Can Afford
Although you must list everyone you owe, you get to choose which debts you want to keep.
Here’s the key point: If you want to keep your possessions, you’ve got to keep paying for your possessions! The flipside of that coin is this: the more you keep, the more you pay. So, don’t bite off more than you can chew.
Having Too Much Cash
You are limited on how much cash you can protect in a bankruptcy case. Determining just how much you can protect requires a review of several factors. If you have too much cash, then I will suggest some “bankruptcy estate planning” strategies. The key point here: don’t give it to family before you come to see me. We must talk before you move anything around!
Filing Bankruptcy When You Have A Substantial Tax Refund Pending
Tax refunds are treated like cash in the bank. If you have too much, we may need to do some “bankruptcy estate planning” to protect it.
Large Credit Card Usage Shortly Before Filing Bankruptcy
Significant cash advances, balance transfers or purchases shortly before filing can create problems for your case. How much is too much? How soon is too soon? It depends on a few factors. Stop using the cards, and let’s talk.
Repaying Family Members Less Than A Year Before Filing
The most common problem here is that the client repays a family member with their tax refund, then the client comes to see me about bankruptcy. That payment to the family member could be a problem in your case. If you can, wait until after your case is over to repay family.
Transferring Or Giving Stuff To Family
You can protect your stuff while it’s in your possession or control, but not after you have given it to someone. So, keep it and you can protect it.
A common “trigger” for questions is when it the tax return shows a distribution of retirement money. We usually need to see a listing of where/how the money was spent.