Filing bankruptcy is a big decision, but may be in your best interest depending on your personal debt, assets, and other factors. In general, bankruptcy may be a good option if your debts far exceed your ability to repay them. People can find themselves in this situation due to circumstances such as serious illness that kept them out of work for an extended period of time or sudden and unexpected job loss that results in significant time unemployed. Regardless of your circumstances, if you plan on filing bankruptcy, here are four major pitfalls to avoid prior to filing.
Repaying Family Members
When it comes to bankruptcy law, creditors come first. This means, it's crucial that you avoid doing things such as repaying a relative money you owe them before repaying a creditor. Unfortunately, if you do so, you may drag your family member into your case unknowingly as any creditor can them reclaim the money you paid the relative.
Maxing Out Credit Cards
Once you've decided to file bankruptcy, it may be tempting to run up your credit cards since you may assume that you'll simply discharge all of your credit card debt in the bankruptcy. Unfortunately, maxing out your credit cards prior to bankruptcy is a bad idea. Debts that you incur to a single creditor in the 90 days preceding your bankruptcy filing that are higher than about $600 and considered non-essential goods are typically not able to be discharged. Therefore you'll likely end up owing and find yourself in more trouble.
When you file bankruptcy, you must list all of your assets. Your assets in excess of a certain amount are considered equity and used to pay back your creditors. Transferring your assets into someone else's name is a major pitfall that not only puts your bankruptcy case at risk, but is also considered bankruptcy fraud and could land you in trouble with the law. The same is true if you try to sell off assets and hide the money earned from the sale.
Failing to Report Assets
Mistakes happen. Sometimes you may find yourself in a situation where you accidentally forgot to report an asset. In those circumstances, it's crucial that you meet with your bankruptcy attorney and report the asset right away. If you purposely fail to report assets, it could land you in trouble. Just as with transferring assets, intentionally failing to report assets is considered fraudulent.