Bankruptcy is a legal and statutory right that can, for many, serve as a last resort for financial relief. As a matter of fact, during the 12-month period ending December 31, 2013, over 1 million Americans filed for bankruptcy. However, bankruptcy can be a complex legal process that is best navigated with the help of an experienced bankruptcy attorney. An attorney can also help you avoid critical mistakes or oversights that can get your case dismissed, cost you even more money, and create serious legal troubles.
We’ve compiled a list of 9 common mistakes that you should become familiar with to help have your debts successfully discharged for that fresh financial start you need:
1. Waiting Until the Last Minute to File
If you have been sued by a creditor and are struggling to make ends meet by taking out pay day loans or cashing out your retirement funds, bankruptcy could provide the financial relief you need before your situation worsens. As soon as you file, an automatic stay is imposed that prohibits creditors from pursuing collection efforts. You may also be able to avoid a repossession or foreclosure. Don’t delay exploring bankruptcy as an option by consulting with a local bankruptcy attorney—most initial consultations are free.
2. Filing Under the Wrong Bankruptcy Chapter
The majority of consumers file either a Chapter 7 or Chapter 13 bankruptcy. Basically, Chapter 7 is a liquidation designed to wipe out unsecured debts such as credit cards and medical bills and Chapter 13 is a reorganization designed for consumers with a regular income to pay back a portion of their debts over a period of up to 5 years. Therefore, the type of debt, income, and property you have will help determine which Chapter to file. An experienced bankruptcy attorney can explain both options and recommend what would be best-suited for your individual financial situation.
3. Forgetting to List a Creditor
For every debt you are seeking to have discharged, you must list the creditor. It’s important that all debts, statements, and necessary paperwork are given to your attorney so all of your qualifying debts are listed on your petition. If there are any co-debtors or liabilities you share with another party, those should be disclosed as well.
4. Failing to Provide Necessary Documentation
As mentioned previously, it’s important that all of the required bankruptcy paperwork, creditors/debts, expenses, tax returns, and pay stubs are provided. This is all information the trustee must review to make a fair determination on your case. Failure to provide the requested information could result in your debts not being discharged.
5. Filing for Bankruptcy When You Are Expecting a Big Tax Refund
Depending on the amount of your refund, there are exemptions that may help you keep a portion of it. It is best to consult with a bankruptcy attorney on how to handle your tax refund and the timing of your bankruptcy.
6. Going on a Spending Spree Right Before Filing
Luxury goods purchases made with a credit card within 90 days of the filing date and cash advances over $750 obtained within 70 days are not dischargeable. Balance transfers and an increase in card usage right before filing are also red flags. You should review purchases with a bankruptcy attorney to help you determine when and if to file.
7. Hiding or Transferring Assets Prior to Filing
This could be considered fraud and may result in assets being seized and further legal action. You must disclose everything to avoid additional financial and legal troubles.
8. Missing the 341 Meeting
A 341 Meeting is also known as the “meeting of creditors.” This is a public meeting conducted by a trustee with other filers present, creditors, and your presence is required otherwise your case may be dismissed with costs charged to you. You must bring a photo ID (driver’s license or other government-issued ID) and your Social Security card or other government document containing your Social Security number (W-2’s, military ID). Without these documents, the 341 Meeting will not be conducted and you will have to reschedule.
9. Not Fulfilling the Credit Counseling and Debtor Education Requirements
Bankruptcy law requires you to complete a Credit Counseling Briefing prior to filing for bankruptcy. Your certificate of completion is a requirement to filing your case. This interactive briefing can be completed online from the comfort of your home and requires you to provide all income and deductions, expenses, debts owed, assets and property.
The Debtor Education Course (also known as Financial Management) must be completed after the 341 meeting but before your debts can be discharged. This course is intended to help you plan your financial future and avoid post-bankruptcy pitfalls and unlike the Credit Counseling, has a 2-hour time requirement.
By avoiding these critical mistakes and with the guidance of a bankruptcy attorney, you can emerge from bankruptcy with a clean slate and a brighter financial future.