Avoid These 8 Mistakes When Filing Bankruptcy

by Gordon Sands

By using a little common sense and a bit of personal responsibility, you can avoid these costly mistakes when filing bankruptcy. Because if you don’t do it right, you’ll pay for it later.

Filing for bankruptcy is undoubtedly one of the most stressful times in an adult’s life, and it is also an issue that requires knowledge of an often baffling system. Most people who are forced to file for bankruptcy often have no idea how the process works, which comes as no surprise considering the complexity of the bankruptcy system.

Let’s examine the eight most important mistakes to avoid when filing for bankruptcy.

1. Failing to List All Creditors

It’s easy when in a stressful situation, such as dealing with a bankruptcy, to make major omissions. In this climate, it is certainly possible to misplace information about potential creditors. However, any bankruptcy settlement requires you legally to include all creditors, even if there is no immediate agreement to repay them. Failure to do so may see a particular creditor omitted from the discharging process in bankruptcy proceedings.

2. Failing to Declare Assets

Equally, it can be tempting to hide away that Swiss bank account with a few thousand dollars in it during the bankruptcy proceedings, with the hope of protecting a nest egg. However, this is, predictably, completely illegal, and could ultimately see you end up in prison. You must make absolutely sure that you list every single asset that you possess during the bankruptcy process.

3. Racking Up Credit

Tempting as it is to have a carefree attitude to credit cards during bankruptcy proceedings, this would be another grave error. Any large purchases charged to your credit card before filing bankruptcy may not be dischargeable. This will only cause you further problems in the future, so the best thing to do is discontinue your credit cards as soon as you realize that you can no longer pay them, or consider consolidating your debt.

4. Procrastinating Over the Situation

Sometimes it can be overwhelming when we find ourselves in a difficult situation, and bankruptcy would certainly qualify as one of those times. Procrastination is common in circumstances like this, but it is imperative that you do not postpone what needs to be done.

This is a mistake in any bankruptcy situation, as debts can exponentially increase when not addressed. Any delinquent bills that you may have will ultimately become collection accounts, which can later be garnished from your wages. Once you realize that you can no longer pay your debts, you should explore your bankruptcy options as soon as possible.

5. Paying Your Family First

While paying off loved ones first is a tempting emotional decision, it is not a sound financial strategy. When you file for bankruptcy, creditors of your estate will receive only a portion of the money that they lend you. This means that they will want as big a percentage as possible, meaning that paying off your nearest and dearest can cause problems with finalizing any bankruptcy agreement.

6. Hanging On to Assets

Dealing with a bankruptcy often requires surrendering a significant portion of assets, and it is easy to feel compelled to withhold an asset. But if you do, depending on the cost of the item, it can come with a high monthly repayment plan. Make sure if you do keep an asset, that you can afford it. If you do decide to keep an expensive item with high monthly repayments, this can result in you racking up further debt.

Indeed, anything that you have of value at this time should probably be sold in an attempt to raise revenue. So rather than holding on to assets, be willing to discharge expensive possessions in order to deal with your debts.

7. Delaying Speaking with a Licensed Trustee

Attempting to deal with a bankruptcy case on your own is a massive mistake. This is a highly technical undertaking, and one which requires professional support. Although a circumstance that involves your finances naturally leads to wanting to save money, it is ill-advised to delay talking to a licensed trustee.

bankruptcy trustee will help you get your finances in order, and ensure that everything runs as smoothly as possible with the bankruptcy proceedings.

8. Rebooting Your Credit File ASAP

Finally, any bankruptcy will have a massive impact on your credit file. Thankfully, it is possible to rehabilitate your credit score so that you can borrow money again in the not-too-distant future. If you want to learn more about how your credit score can be increased, read Rebuilding Credit After Bankruptcy.

So that’s the lowdown on some of the most common and harmful mistakes when filing bankruptcy. Avoiding these mistakes only requires a bit of common sense and some personal responsibility, which is essential at this critical time in your life. It is strongly advised that you seek out a fully qualified bankruptcy trustee to help you comply with bankruptcy law and overcome your financial burden.

Reviewed September 2019

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