Prevent these usual bankruptcy mistakes for your financial safety

Facing financial struggles is never easy, and knowing the common bankruptcy mistakes people often make can save you from additional distress. Located in the heart of Pasadena, CA, the Law Office of Daniela Romero has been guiding people through bankruptcy for years. With our extensive knowledge of bankruptcy law, we have helped many from falling into common mistakes. And the best part? They offer free phone consultations to get you started on the right path.

Are you considering filing for bankruptcy? Don’t embark on this journey alone. Contact our law firm for legal guidance!

What are Common Mistakes People Make When Filing for Bankruptcy? 

Filing for bankruptcy might feel like navigating a complex maze without a map. But knowing the route and avoiding common mistakes can make the journey smoother. Let’s explore some common mistakes that people often make during this process:

Racking Up Credit Card Debt

Be extra cautious about your spending in the 75 days leading to your bankruptcy. This time frame is scrutinized closely, and making large purchases—especially through credit cards or cash advances—could raise red flags. The assumption is that you’re spending money you know you won’t be able to repay.

Creditors are on high alert during this sensitive period. They can go to bankruptcy court and argue these particular debts should not be eliminated.

If you’re not cautious and spend recklessly right before filing, you risk being charged with fraudulent behavior.

Using Retirement Funds to Pay Off Debts

Many view retirement funds as a safety net in times of financial difficulty. The urge to use this reserved money can be compelling, especially when debts loom large. However, it’s crucial to remember that in most bankruptcy cases, these retirement accounts are protected and remain untouched.

Withdrawing from them ahead of time can lead to unintended consequences. This early access often results in tax implications and can incur hefty penalties. Additionally, spending these saved funds doesn’t always equate to a debt-free future. Despite using their hard-earned retirement savings, some individuals find themselves spiraling back into debt. Before considering such a step, evaluating other options and long-term ramifications is wise.

Filing Right Before a Big Life Change

Timing is everything, especially when it comes to filing for bankruptcy. Believe it or not, the timing of major life events (e.g., getting married) can impact your bankruptcy process. Only your financial details are under the court’s microscope when you are single. But tie the knot, and suddenly your spouse’s income and assets are also up for scrutiny. That could result in a denied bankruptcy application or limit you to filing under Chapter 13 when you might have been eligible for the more lenient Chapter 7 if you’d filed when still single.

Similarly, hold off on filing if you’re about to come into a significant amount of money—whether from an inheritance, a legal settlement, or an insurance payout. If you acquire these funds too near your filing date, there’s a good chance you’ll have to fork it over to the bankruptcy trustee. Timing matters, so plan wisely.

Delay in Consulting a Bankruptcy Attorney 

It’s surprising how many in Pasadena delay seeking the advice of a bankruptcy attorney. More often than not, when they finally reach out for professional guidance, their financial woes have snowballed.

Understandably, financial challenges can be daunting, but why hesitate when many local attorneys are ready to provide free consultations? Taking the initiative to seek legal advice early on can make all the difference.

It helps assess the situation and sets the stage for a more seamless financial recovery. In financial setbacks, being proactive is the key to regaining control.

Over-eagerness in Repaying Relatives 

It’s a common instinct to want to pay back friends and family first when you find yourself drowning in debt. While it might seem the proper thing to do, you could unknowingly create legal issues for yourself. According to bankruptcy law, payments made to relatives or close friends before other creditors can be seen as preferential. That can result in those payments being reversed or, or the very least, cause complications in your bankruptcy process.

Consulting with our attorneys at Daniela Romero can guide you through these sensitive matters. Clear and timely communication can help you avoid this all-too-common mistake, making your path to financial stability smoother and less stressful.

Asset Transfers 

It’s tempting to think that moving assets out of your name before filing can protect them. However, such transfers can be seen as an attempt to mislead creditors. 

For example, if you were to sell a high-value car at a drastically reduced price just before filing, it might raise suspicions. Actions like these can be red-flagged and even reversed, leaving you at a disadvantage. The worst case is you could lose more than you intended. It’s vital to tread carefully in these matters. 

Before making any decisions regarding asset transfers, always seek advice from our bankruptcy lawyer to ensure you’re on the right side of the law.

Choosing the Wrong Type of Bankruptcy

Bankruptcy isn’t a one-size-fits-all solution. Different chapters—Chapter 7, Chapter 13, and Chapter 11—come with distinct processes and outcomes.

For instance, under Chapter 7, your nonexempt assets get liquidated to repay your creditors. Chapters 13 and 11, on the other hand, involve setting up a payment plan to clear your debts over 3 to 5 years.

Mistakenly choosing the wrong chapter can lead to a declined bankruptcy petition. Given the nuances, it’s crucial to consult an experienced bankruptcy attorney.

Our attorneys at Daniela Romero Law Firm can assess your financial landscape and guide you to the most suitable bankruptcy chapter for your unique circumstances.

Setting Up an Unrealistic Chapter 13 Payment Plan

Filing for Chapter 13 bankruptcy means you’ll submit a proposal for a repayment plan to the courts. This plan, usually lasting between 3 to 5 years, lays out how you’ll repay your debts. Once you complete the plan, your remaining unsecured debts will be discharged.

However, getting your proposed payment plan approved by the courts is not guaranteed. The plan has to meet specific criteria. For instance, some debts are prioritized over others, and the amount repaid to creditors has to match at least what they would receive under a Chapter 7 liquidation.

If your first plan isn’t approved, it’s back to square one. That is why it’s crucial to consult with our bankruptcy attorney at Daniela Romero Law Firm to ensure your Chapter 13 payment plan is realistic and meets court requirements.

Overlooking Bankruptcy as a Debt Solution

Too often, individuals grappling with debt are hesitant about considering bankruptcy. Their reluctance stems from misconceptions about its impact on credit scores or other unfounded fears. It’s crucial to differentiate fact from fiction when it comes to bankruptcy. The media can sometimes portray it negatively, influencing decisions based on incomplete information. 

While bankruptcy has challenges, like the potential loss of assets, it can offer a fresh start. It’s a chance to reset and rebuild, free from the weight of insurmountable debt. Before dismissing bankruptcy as a viable solution, it’s worth diving deeper to understand its true implications and benefits.

Avoid Common Bankruptcy Mistakes with Legal Guidance

Avoiding common bankruptcy mistakes is essential for a secure financial future. Although we’ve discussed several significant errors, bankruptcy law’s twists and turns can be challenging. That’s where our bankruptcy attorneys at the Law Office of Daniela Romero come in.

Beyond bankruptcy, our legal team in Pasadena, CA, offers guidance on other important issues. If you have been injured due to someone’s negligence, we can assist with personal injury claims to ensure you get the justice you deserve. To those tangled in tax disputes, we provide resolutions to give you peace of mind. And if you’re facing the threat of losing your home, our extensive knowledge of foreclosure can be your protection.

Ready to take the first step toward financial peace? Our free phone consultations are a great place to start. We’ll discuss your worries, answer your questions, and help you move toward a life free from financial burdens. Call us now!