Coming to the decision to file for bankruptcy can be a difficult decision. So, you want to be sure that you are taking the right steps before filing. A mistake in bankruptcy can make it difficult to achieve your fresh start. We want you to be in right place before filing. Below are a list of common bankruptcy mistakes to avoid:
Do Not Run Up Your Credit Cards
Under the Bankruptcy Code, credit accumulated over $1,225.00 within 60 days prior to filing bankruptcy can result in the debt not being discharged. This means it will need to be repaid by you. However, you should know that creditors will look back further than 60 days. Also, it is likely to create creditor problems, if you charge a lot of money on credit cards before you file. If you are ready to file for bankruptcy, you should stop using your credit cards altogether. You also want to avoid borrowing on your credit cards to pay off other credit cards.
Do Not Use a Retirement Plan to Pay Off a Debt
Retirement should be left untouched, if possible. Typically, retirement funds exempt in a bankruptcy, which means that you will not lose these funds. You should know that borrowing money from your retirement is a very expensive thing to do. If you do not repay the borrowed money, you will be taxed on that borrowed money. You will also need to pay a penalty for taking it out early.
Many people make an early withdrawal from their retirement to repay debt, but end up racking up more debt again. Before you borrow money to pay off debt, you should discuss this matter with an attorney. Click here to read more about why you should not take money out of your retirement plan.
Do Not Take an Additional Mortgage on Your Home
Taking an additional mortgage out on your home or other equity lines of credit to repay your debt is a huge bankruptcy mistake. Are you tempted to use this kind of money to repay your unsecured debt (medical bills, credit card debt, signature loans, etc.)? Wait! This type of unsecured debt can be discharged through bankruptcy without the need of an additional mortgage or equity line.
Remember, an equity line of credit is another mortgage on your home. There are even times where credit cards are equity lines of credit in disguise. Be careful and avoid using the equity in your home to pay off your debt.
Do Not Wait Too Long to File
It is common for people to wait before consulting with an attorney. Why wait? Most attorneys offer free consultations, which will provide you with information and options for your financial situation. Ask yourself: “Can I make it another six months with this debt? Another year?” If you feel that you will not be closer to being debt free, you should consider bankruptcy. Waiting too long can prolong your debt problems and prevent you from a fresh start. The sooner you get started, the sooner you can reestablish your credit.
Avoid Taking Extra Taxes Out of Your Paycheck
If you are having extra taken out of your paycheck every week with the hopes of a large refund at the end of the year, stop. This is an avoidable problem in bankruptcy. In some cases, you may lose your tax refund to the trustee, who will distribute it to your creditors. Also, you are preventing yourself from money that can go to you and your family’s living expenses.
Do NOT Pay Back Relatives or Friends First
When filing for bankruptcy, there are periods of time that the trustee will look at to see if there have been any preferential repayments. If so, they will be reversed. Generally, if no single creditor was paid over $600 within 90 days before filing, there will be no preference. However, the trustee can look back up to two years for family members or other “insiders.” It can be tempting to repay family before other creditors, but bankruptcy law will reverse these preferential repayments.
Have you already repaid a friend of family member? Speak to an attorney, as there are options. You need to be completely upfront and honest about this to avoid your relatives from potential lawsuits. You also want to avoid paying a debt that a family member has co-signed.
Do Not Transfer Assets Out of Your Name
Do not put your name on a someone’s account, so that you can pay their bills. Just like the preferential payments, the bankruptcy petition will require you to list any property that was transferred out of your name within one year before your bankruptcy filing. However, this does not mean that you cannot file for one year after transferring property out of your name. An example, if you sell a car to someone for $2,000 and the car is worth $2,000, there would not be a problem in the bankruptcy.
On the other hand, if you sold a brand-new car to a friend for $20 in the year before your bankruptcy, the trustee will consider this a fake transaction to get the car out of your name. The trustee would require you to put that car back in your name and sell it to repay your creditors. Any transfer should be discussed in detail with your bankruptcy attorney, as some “look back periods” are as long as four years.
Need More Information?
If you are thinking about filing for bankruptcy, you need to speak with an attorney before making any changes to your financial situation. Most consultations are free and can save you thousands of dollars. You owe yourself the chance at a fresh start!
At the Law Office of Daniela Romero, APLC, we believe in relationships that are based on trust. Before we work together, we would like to get to know you and we would like you to get to know us. We want you to be sure you are the right fit for us and that we are the perfect fit for you. This will allow you to be completely comfortable sharing intimate and difficult details of your case, so we can offer you representation to the fullest extent of the law. Call us today to set up a free consultation.