Sometimes, finances may just not work out despite your best efforts. In such cases, bankruptcy can offer a fresh start and relief from overwhelming debt.
However, whether you’re considering Chapter 7 or Chapter 13 bankruptcy, it’s crucial to avoid common mistakes that can jeopardize your financial recovery. These mistakes include the following.
Giving away assets
One major mistake is transferring your assets to others, such as family or friends, before filing for bankruptcy. This could include giving away cash, valuable items or even vehicles. Such transfers are often scrutinized by the bankruptcy court, and if they suspect you are trying to hide assets, your case could be dismissed. The court may view these actions as fraudulent and may even take legal action against you.
Withdrawing from retirement accounts
Cashing out retirement funds, such as a 401(k) or IRA, to hide money before filing for bankruptcy is generally a bad idea. Retirement savings are usually protected from creditors during bankruptcy, so withdrawing them could be unnecessary and could even harm your financial situation. Instead, seek advice on how to legally protect your assets without jeopardizing your future retirement security.
Misrepresenting your assets
Honesty is crucial during bankruptcy proceedings. Whether filing for Chapter 7 or 13, you are required to disclose all your assets and income. Failing to fully disclose or deliberately misrepresenting your financial situation can lead to severe consequences. If the bankruptcy trustee uncovers hidden assets or discrepancies, it could result in the dismissal of your case and the possibility of facing criminal charges for fraud.
Accumulating credit card debt
Increasing your credit card balances shortly before filing for bankruptcy can be a significant issue. Creditors are likely to challenge the discharge of these debts if they suspect that you incurred them with the intention of avoiding repayment. This can complicate your bankruptcy process and result in additional financial strain. It’s wise to stop using credit cards as soon as you start considering bankruptcy to prevent such issues.
For a smoother bankruptcy process and to avoid these pitfalls, it’s important to seek knowledgeable legal guidance.
