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If you are facing a critical financial situation, and if nothing else works to restore your financial health but you have the option of filing bankruptcy, it is okay to go for it. However, remember to take a careful approach and avoid any mistakes that can derail the process of filing bankruptcy. Here are some of the common mistakes one should avoid when filing for bankruptcy. ~ Ed.
Life-changing events such as illness, loss of a job, and divorce can push an individual to their breaking point, especially in terms of finances. In the context of business bankruptcy, wrong turns and unexpected bumps in the road can have similarly dire consequences.
If your business’s finances have gone up in flames, retracing your steps and identifying the root cause of this financial fire is an essential step. For some business owners, the weight of external forces like a bearish market, unraveling consumer confidence, shifting customer preferences reaches crushing levels.
In other cases, internal missteps, such as tacking on loads of debt, poor decision-making or questionable management skills will leave entrepreneurs stumbling down the road to bankruptcy.
Whatever has sent your bottom line in smoke, remember that financial ruin is much closer than it may appear. While there are many options to turn to when trying to restore your financial health, sometimes bankruptcy is the only way out of sky-high debts.
However, most people are rookies when filing for bankruptcy, and this inexperience can lead to costly mistakes.
If you are taking the first steps to re-secure your finances, here are eight bankruptcy blunders to avoid.
8 Mistakes to Avoid When Filing Bankruptcy
Delaying your filing for bankruptcy, not filing income tax returns, making big purchases before filing bankruptcy are some of the mistake you should avoid. Read to know more about such mistakes.
Not consulting an attorney
When it comes to the infinite red tape of finance law, you need to consult a bankruptcy attorney for expert guidance. A reputable and experienced bankruptcy firm such as wh Law can help people wishing to file for bankruptcy in many ways, including:
- Guiding you through the legal process
- Handling your creditors
- Assisting with the property valuation
- Dealing with scheduling and paperwork
A knowledgeable attorney is likely to deliver success and help you save on costs throughout this challenging time.
You can file for bankruptcy under Chapter 7, Chapter 11, or Chapter 13. Keep in mind that the processes are different for each chapter, so you need to be sure you choose the right one for you.
Under Chapter 7, the bankruptcy court will sell whatever you do not exempt. The proceeds are used to pay creditors. For Chapters 11 and 13, the court places you on a payment plan to repay your outstanding debts within three to five years.
Ensure you file under the right chapter to avoid rejection of your petition.
Repaying family and friends’ debts
Do not make the mistake of repaying family or friends’ loans before filing for bankruptcy.
Repaying your family and friends is a blunder that puts you in a risky situation. Why? The other attorney may file a lawsuit against you, your family, and your friends. The plaintiff’s attorney views your income as their plaintiffs by rights, so giving that income away to friends and family could be grounds for aggressive litigation against you.
Making big purchases
It is not uncommon to find a filer making credit purchases a month or few weeks before filing for bankruptcy. Avoid doing this because it makes your case for bankruptcy status less stable.
Are you filing bankruptcy in good faith? If the court establishes otherwise, your petition may be declared fraudulent, and you will have little recourse for your financial situation.
Avoid taking additional debt within ninety days of your filing, as it gives the court and creditors sufficient reason for declining your petition.
Transferring your assets to family or friends is an act of dishonesty that raises a red flag with the court.
The IRS can confiscate your car if they realize you never listed it as an asset while filing. Additionally, the bankruptcy court can consider this fraud and an attempt to frustrate your creditors, landing you in even hotter water than before.
Delaying before filing
Fear of the aftermath of filing for bankruptcy holds many back, causing them to wait too long.
Listening to the media and friends, you may think of bankruptcy as the worst thing that can happen to you. But that isn’t the case. After discharge, you enter a new beginning where you can rebuild your credit and move on with your life.
Therefore, when having severe financial problems, do not hesitate to file bankruptcy. It may be the light at the end of the tunnel you have been waiting for.
Cashing-in your retirement account
Creditors are not allowed to force you to cash in your retirement and 401 (K) accounts to pay their debts. That money is for your retirement and nothing else.
Not filing income tax returns
If you want to protect your current property ownership and earnings, ensure you file your tax returns when completing the necessary paperwork.
With your attorney aware, they will fight to protect the income and assets.
Before you go
Filing for bankruptcy is a process that requires a careful approach. One mistake will happen, and the court will dismiss your case, leaving you helpless in your financial ruin.
The good news is that working with a bankruptcy attorney guarantees you a smooth and successful filing free of mistakes. If you are looking for a way out of your financial misfortune, filing for bankruptcy might be the path for you.
Over to you
Are you aware of any other mistakes to avoid when filing for bankruptcy? Please share your tips in the comments section.