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Qualifying for Bankruptcy: Common Mistakes to Avoid When Contemplating a Bankruptcy Filing

Posted on November 8th, 2021

It is inevitable that when faced with financial difficulties, most individuals will take steps to improve their financial situation.  These steps however, generally do not improve their financial situation and more often than not, a bankruptcy still becomes necessary.   If you’re faced with a mountain of debt that doesn’t seem to be going away, bankruptcy is your best bet to achieve the financial fresh start you are looking for.  Below are some tips on how to avoid making pre-bankruptcy mistakes which can complicate your ability to file and become debt free.

KEEP YOUR PENSION AND YOUR ASSETS

1. When faced with financial disaster, borrowers will often look towards their own assets to liquidate before considering bankruptcy.  Don’t fall into this trap!  Liquidating your retirement, your belongings and savings will only affect your ability to get back on your feet.  Most retirement accounts, household belongings, and savings are protected from bankruptcy and do not have to be liquidated.  Do not affect your future with your present financial situation!  Before you clean out your 401K to pay off your debt seek the advice of a bankruptcy attorney, you may have alternative options available to you that don’t require you to be penniless first! 

DON’T TRANSFER ASSETS

2. Avoid taking your name off of assets such as: real estate, bank accounts, and vehicles.  Under the Bankruptcy Code transfer of property for less than fair value prior to a bankruptcy are considered fraudulent and can complicate your ability to file.  Before you transfer your house to a family member or friend consult with legal counsel to ensure that you are not going to hinder your ability to obtain a fresh start.

DON’T USE YOUR CREDIT CARDS

3. With soaring interest rates, late charges and fees, borrowers find themselves in a vicious circle of making high minimum payments only to need to re-incur debt in order to pay for necessary living expenses.  If you’re in this vicious circle of payments, stop using your credit and seek professional legal assistance immediately.  Credit card usage prior to a bankruptcy filing can appear to be abusive, creating additional litigation and higher legal fees.  Break the cycle and stop using your credit if you cannot pay it off. 

“PREFERENTIAL PAYMENTS” – DON’T PAY BACK YOUR FAMILY AND FRIENDS

4. Be aware that if you stop paying your creditors and are contemplating a bankruptcy filing, please do not pay back your family and friends.  In the eyes of the law, grandma is an equal creditor with Visa, repayment on debt owed to family and friends is considered preferential and can create serious issues with your ability to file bankruptcy.  Treat all your creditors the same and prevent issues arising from paying back grandma.  Notify your legal counsel immediately if you have debt to family and friends and they will be able to advise you on the proper course to take in handling that debt.

By keeping these four simple tips in mind, you will avoid common mistakes that are made that have a great impact on your ability to file bankruptcy, and ability to keep legal fees at minimum.  There are professionals out there with the answers and education to assist you in getting out of your debt, and on back on the road to financial success! 

There are many different mistakes that can happen and a bankruptcy lawyer, like someone from the Law Offices of Neil Crane, can explain them all to you.

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