Filing for bankruptcy is a major decision that can impact your life in numerous ways. If you plan to file for bankruptcy, it’s important that it’s done right. Understanding what not to do can save you a heap of trouble when navigating this complex, life-changing process.
Lying about your assets
When filing a Chapter 7 bankruptcy, it is crucial that you be honest about all income – whether it be earned from employment or non-employment-related incentives. That means every penny earned should be included. Leaving out any form of income could result in your case being dismissed and you being banned from filing bankruptcy again in the future. If anything is omitted, it will be detected by a bankruptcy trustee.
Additionally, you should not give away assets or payments to family members. It’s not only dishonest -- it could result in you permanently losing assets. Transferring assets to friends and family for the purpose of protecting them from bankruptcy is illegal.
Aside from your salary or wages, other forms of income can include:
- CD accounts and bonds
- Dividends from stocks and EFTs
- Independent contractor income
- Gambling winnings
Running up your credit card debt or taking on new debt
When you file for bankruptcy, you should stop using your credit cards immediately. If you run up your credit card debt before filing for bankruptcy, you will still owe money to your creditors. In fact, you may even be required to pay your debt in full. Any purchases you make within 90 days of filing for bankruptcy won’t be discharged.
The goal of filing for bankruptcy is to eliminate all debt, not to take on new debt. Avoid taking on new loans or tapping into your home equity line.
Dipping into your 401(k) and IRA accounts
Using funds from these accounts to pay off creditors is generally a poor decision. You can withdraw money from your 401(k) in an emergency, but it comes with a 10 percent penalty unless the amount exceeds 7.5 percent of your income. Additionally, your retirement accounts are exempt from being seized by creditors and bankruptcy trustees – so tapping into them won’t do you any good.
Not understanding what is exempt
Bankruptcy will allow you to discharge credit card debt, medical bills, lawsuit judgments, personal loans, and other types of unsecured debt. It won’t allow you to discharge student loans, tax debt, child support, alimony, fines, and penalties.
Not consulting with an attorney
Anytime you file for bankruptcy, you should always consult with an attorney. The process is simply too complex and attempting to handle a bankruptcy alone could result in you losing additional assets. In 2017, people who handled their bankruptcies without first consulting with an attorney succeeded only 5 percent of the time.
The experienced legal team at Matthews & Megna can help guide you through the process. We can help determine which type of bankruptcy will best suit your needs and ensure that all paperwork is properly filled out and submitted. We can also help you determine which types of debt or assets are exempt and non-exempt. To learn more about how we can help, contact us today for a free consultation.