Filing for bankruptcy is a decision that requires careful consideration. Your financial obligations have become overwhelming, and you need a fresh start.
However, navigating the process can be challenging. Missteps along the way can lead to delays or even a dismissal of your case. Understanding and avoiding these common pitfalls can lead to a significantly better experience.
1. Not disclosing all financial information
A significant mistake is withholding or inadvertently omitting financial details. Complete transparency of your financial situation is essential during the bankruptcy filing, including your income, debts and assets.
The court may perceive your omissions as fraudulent behavior, leading to penalties such as denial of discharge of your debts, dismissal of your bankruptcy case or legal prosecution. Therefore, it’s crucial to take a complete inventory, including the small details, of your finances. Then, carefully review your forms to ensure accuracy before submitting them.
2. Continuing to accumulate debt
Some people think they can continue to use credit irresponsibly because their debt will be wiped out during bankruptcy. They may run up the credit card balances or take out a loan right before declaring bankruptcy.
The court will examine closely any financial transactions made just before filing. If any of them appear fraudulent, meaning you created them with no intention of repaying them, the court may exclude them from the bankruptcy discharge. Once you have decided to file for bankruptcy, you should cease any excess spending and using your credit cards.
3. Choosing the wrong type of bankruptcy
When filing for bankruptcy, you may have the choice between Chapter 7 and Chapter 13. Each one has specific eligibility criteria and serves different purposes. Chapter 7 requires passing a “means test” to ensure your household income is below a certain threshold. Chapter 13 is better suited for individuals with a steady income who can repay part of their debts through a restructuring payment program.
To ensure your bankruptcy case goes smoothly, it’s essential that you work with a legal professional who can guide you through the process and help you avoid common pitfalls.