1. Not Choosing the Right Chapter
The most common consumer bankruptcies are Chapter 7 and Chapter 13. However, there is a considerable level of difference between the two. Chapter 7 liquidates your assets as a means to pay off your outstanding debt, while Chapter 13 re-organizes your debt repayment schedule. Some people get confused between the two and end up realizing too late that they opted for the wrong one, after going halfway through the exhaustive process.
2. Withdrawing Funds from a Retirement Account
Retirement accounts, such as your 401(k), are exempt from bankruptcy proceedings. Many people, unaware of this, mistakenly withdraw funds from these accounts. However, such withdrawals are considered as income and are considered non-exempt.
3. Running up on Credits
Since filing for bankruptcy discharges your credit card debt, some people assume that they can get away with using their credit cards as much as possible before filing for bankruptcy. However, charges made 90 days before filing, or any cash advances taken out 70 days before filing, are not forgivable under a bankruptcy case, and the filer is still required to pay back the outstanding sum.
4. Transferring Assets to Someone Else’s Name
To avoid the risk of foreclosure, some people attempt to transfer the rights to their assets to a family member, friend, or person they can trust. However, doing so won’t actually guarantee the protection of your assets as transfers done with this intent is referred to as fraudulent conveyance. Courts are allowed to reverse such transfers if they occurred within four years of the day you file bankruptcy.
5. Paying Back Debt Owed to Family or Friends Before Filing for Bankruptcy
Family and friends often come first, but unfortunately, debt is a definite exception. If you pay back the debt you owe to your family or friends before filing for bankruptcy, the trustee may deem it a case of preferential payment and could potentially file a lawsuit against them for the return of these payments.
6. Not Taking the Help of an Attorney
Another major mistake many people make before filing for bankruptcy is not to take legal aid from an attorney to help them through the process. Most attorneys offer free consultations and can help you find the best route through the complicated legal process to ensure that the end results of the entire bankruptcy process are more in your favor.
Even today, many Americans have little knowledge of bankruptcy, which is why they end up making the wrong choices in the process that end up costing them dearly. Here are 5 mistakes to avoid before filing for bankruptcy. For a free consultation on consumer bankruptcy and more, book an appointment with the Law Offices of Sean T. Flynn by calling 512.640.3340 and scheduling one directly online.