If you want to keep some of your debts, a repayment plan via a Chapter 13 bankruptcy may be the right move if you’re struggling. Alternatively, Chapter 7 could let you discharge everything to move on faster.
But no matter what type of bankruptcy you go with, there are several missteps a debtor can make along the way. Some bigger mistakes have severe implications or may disqualify you from bankruptcy protection.
Here are the most common bankruptcy mistakes to avoid and how to escape them.
Mistake 1 — Run Up Bills Before Filing
One of the top mistakes people make before declaring bankruptcy is running up their bills and using all available credit. Unfortunately, if your creditors have reason to believe that you ran up the balance before you declared bankruptcy, they have the authority to challenge your request to discharge the debt.
Debts are typically only available for discharge if they are greater than 90 days old before the filing of your bankruptcy petition.
Mistake 2 — Transferring Property
Transferring your property in the hopes of protecting it while you declare bankruptcy is against the law and a red flag for bankruptcy court officials and creditors. All your valuable assets will need to be included in your bankruptcy petition to determine whether they are actual assets or should be listed as a liability on your bankruptcy petition.
If you owe on a valuable item, you may still be able to retain possession of this item if you go with Chapter 13 and formulate a repayment plan.
Mistake 3 — Hiding Assets
One of the top mistakes you can make when attempting to declare bankruptcy is hiding your assets. You must prove to the court that you cannot cover your outstanding debts.
If your assets can be sold and used to repay creditors, as is seen in Chapter 7 bankruptcy declarations, you will need to be prepared to do so if you want to move forward with your bankruptcy.
Attempting to hide assets could have a devastating impact on your opportunities for financial relief.
Mistake 5 – Using Retirement Money
Never tap into your retirement savings accounts to pay off your credit debt before you declare bankruptcy. When you file for bankruptcy, your retirement savings accounts may be exempt.
This means your bankruptcy trustee or creditors cannot seize them. For this reason, there is no reason why you should take money out of your retirement to cover your existing debts.
Mistake 6 – Picking the Wrong Chapter
It is important to work with your bankruptcy attorney to determine the type of bankruptcy best fits your case. If you declare a Chapter 13 bankruptcy petition when you should have filed under Chapter 7, it could make the bankruptcy process more drawn out than it needs to be.
Chapter 13 requires reorganization plans that span 3 to 5 years. If it makes more sense to sell your assets to cover your debts via Chapter 7, this may be the route to take.
Mistake 7 – Taking on New Debts
As soon as you realize you are overwhelmed by debt that you won’t be able to pay, one of the biggest mistakes you can make is continuing to take on new debt. Now is not the time to start spending money on your credit cards and incurring additional debts.
If you take out loans and have no intention of paying back your creditors, this may be considered a fraudulent transaction and could result in the court denying your bankruptcy petition.
Mistake 8 – Waiting Too Long to File
Do not wait too long to file your bankruptcy declaration. The longer you wait, the more you will owe your creditors. If you start working on your bankruptcy plans now, you may be able to save yourself a significant amount of money in the long run.
If you are in debt because you were laid off or terminated, it is crucial to look for work immediately. Do not wait until you have filed for a start building yourself up again financially.
The Impact of a Bankruptcy Mistake
Mistakes happen, and the Ohio bankruptcy courts understand this. However, if the court finds you engaging in fraudulent behaviors, they may be unwilling to help you find financial relief.
Some of the potential consequences of bankruptcy errors include:
- File an amended bankruptcy petition if the mistake you made was genuine and had only a minor impact on your bankruptcy petition
- Tasking the bankruptcy trustee to recover assets you transferred to friends or family members in an attempt to hide them or pay back a debt, as this is considered preferential treatment
- Possible criminal charges involving bankruptcy fraud, which are punishable by fines as high as $5,000 and a maximum of five years in jail for each bankruptcy fraud charge
- Your bankruptcy trustee can deny your bankruptcy petition if they believe you are attempting to defraud or take advantage of the bankruptcy system
In addition to these severe consequences, even a relatively minor mistake can mean restarting the bankruptcy process, which is both inconvenient and expensive if you’re struggling with debt.
It is best to use a bankruptcy attorney who can ensure you comply with state and federal bankruptcy laws, identify the correct type of bankruptcy, and help you achieve financial freedom through bankruptcy.
Our Cleveland Bankruptcy Attorneys Can Help
The best way to protect yourself as you navigate the bankruptcy filing process is by having an experienced bankruptcy attorney advocating for you. In doing so, you can avoid many of the previously mentioned mistakes and take steps to secure financial relief as soon as possible.
When you are ready to move forward, reach out to Cleveland Bankruptcy Attorneys, LLP for a free and confidential case review. You can reach us online or call (216) 586-6600 to get started.