You are already in a stressful situation, and making a bankruptcy mistake may make the situation even more stressful. For example, do you know how much bankruptcy will actually cost you to file? Should you use your credit cards?
So, a Chapter 7 bankruptcy or Chapter 13 bankruptcy can get rid of your unsecured debts and give you a fresh start. However, there are some things to avoid when filing bankruptcy. A bankruptcy mistake could make your bankruptcy case more difficult.
How to Avoid a Bankruptcy Mistake That Could Hurt Your Case
Even before you file your bankruptcy case, you could make a bankruptcy mistake that would hurt your chance of getting a fresh start. Things you need to know before filing bankruptcy include:
1. Know The Costs of Bankruptcy
When you file bankruptcy with an attorney, one of your biggest fees will be the bankruptcy attorney fees. Now, many attorneys will take payments as you are already facing financial hardship.
That said, there is a huge difference in the costs based on the chapter, expertise, attorney interaction, etc. Because this was such an important element, we built this free all-in bankruptcy cost calculator that takes 2-5 minutes and is based on your state and zip code to help you estimate your all-in costs to not go into your free consultation blind.
2. Stop Using Your Credit Cards
You cannot get rid of debts you incur immediately before filing bankruptcy. Therefore, you need to stop using your credit cards when you think about filing a bankruptcy case. Running up credit card debt before filing a bankruptcy could be a costly bankruptcy mistake.
Using credit cards for luxury services or goods totaling more than $800 within 90 days of filing bankruptcy is presumed fraud. Additionally, cash advances totaling more than $1,100 within 70 days before filing bankruptcy is presumed fraud. Therefore, the credit card company can object to the discharge of this debt.
3. Do Not Sell or Transfer Property or Money
If you give away or sell your assets before filing bankruptcy, the Chapter 7 trustee might sue the person to recover the asset. Trying to conceal assets by transferring them is bankruptcy fraud.
You might be able to sell an asset for fair market value and use the funds for living expenses without causing a problem. However, it is best to check with a bankruptcy lawyer before transferring any property before filing bankruptcy. The property might be protected by bankruptcy exemptions, which would allow you to keep the property.
Most people who file for bankruptcy keep their property. However, trying to hide your property could result in losing the property because you committed bankruptcy fraud.
4. Do Not Withdraw Money From Your Retirement Accounts
Most retirement accounts are exempt when you file for bankruptcy relief. However, you lose the exemption if you withdraw the money from your 401(k) or other retirement accounts. That money could be taken by the Chapter 7 trustee or counted as an asset when calculating your Chapter 13 plan. So instead, leave that money in your account and use bankruptcy exemptions to protect the money.
5. Do Not Pay Family Members or Friends Before Filing Bankruptcy
Paying family members or friends within one year before filing bankruptcy is considered a preferential transfer. The bankruptcy trustee can sue them to recover the money for the bankruptcy estate. If you owe your family members or friends a debt, you must list that debt in your bankruptcy. If the money they gave you was a gift, you do not need to list them as a creditor.
When you receive the final order closing your bankruptcy case, you may voluntarily pay back any money you owe to family members and friends. However, if those individuals are listed in your bankruptcy case as unsecured creditors, you are not legally required to repay the debt.
6. Do Not Use Money From Your Home Equity Line to Repay Debts
Before using the equity line on your home to repay debts, talk with a bankruptcy lawyer. Bankruptcy exemptions may protect the equity in your home. If your home is covered by bankruptcy exemptions, neither your creditors nor the bankruptcy trustee can use the equity in your home to repay unsecured debts.
In other words, you may be able to file Chapter 7, get rid of your unsecured debts, and keep the equity in your home.
7. Do Not Lie About Your Income or Expenses
It may be tempting to increase your expenses or decrease your income to qualify for Chapter 7 bankruptcy or lower your bankruptcy plan payments in Chapter 13 bankruptcy. However, the bankruptcy trustee reviews the copies of your pay stubs and other evidence of income for six months before filing bankruptcy. Many trustees also carefully review your current pay stubs and your tax returns.
In some cases, a bankruptcy trustee might request proof of expenses, especially if those expenses appear higher than average for a family of your size. If you claim extra-ordinary expenses, you may be required to provide proof of paying the expense and proof of why the expense is necessary. For example, the special dietary needs of a person with a health condition.
8. Do Not File a Bankruptcy Case Before Receiving a Valuable Asset
If you receive an asset during your bankruptcy case, you could lose those assets, especially if you did not disclose the asset on your bankruptcy forms and claim a bankruptcy exemption for the asset. For example, suppose you anticipate receiving a $6,000 tax refund. However, you do not disclose the tax refund as an asset and claim a bankruptcy exemption. In that case, the Chapter 7 bankruptcy trustee might seize your tax refund.
You should consult a bankruptcy lawyer if you think you could receive a bonus from work, inheritance, tax refund, gift, or other assets during your bankruptcy case. A bankruptcy attorney can review your case to determine whether the asset could be in jeopardy if you file bankruptcy. If so, a bankruptcy attorney can discuss other debt-relief options or time the filing of your bankruptcy case to protect the asset.
Do You Need Help with Debts You Cannot Pay? Ascend Can Help You Avoid a Bankruptcy Mistake
At Ascend, we help people find affordable solutions to their debt problems. Most of our services are provided free of charge. You can talk with a team member, learn about debt-relief options, and explore bankruptcy options without charge.
You can use our free all-in bankruptcy cost estimator or debt-relief comparison calculator to explore options for getting out of debt. We can also help you find a bankruptcy lawyer near you who offers free bankruptcy consultations.
Avoid a Bankruptcy Mistake – Call Ascend Today
Call us now or contact Ascend online for a free debt evaluation. Learn more about our services and how we can help you take control of your finances and build a solid financial foundation for you and your family.