Twelve Don'ts in Filing for Bankruptcy in 2012
Many people find themselves in financial turmoil and finally decide that enough is enough; it's time to file bankruptcy. The goal is for a fresh start from the monthly burden of trying to pay bills when there is not enough income to do so.
Bankruptcy happens. When it happens to you, try to avoid the following 12 common mistakes.
Don't Lie
The vast majority of those who file for bankruptcy protection do qualify. Those who don't will generally have other options available to them. Deciding to file anyway -- despite not qualifying -- by leaving out assets or income could result in the case being dismissed and the filer being barred from filing on those particular debts ever again.
Don't Leave Out Income
People think that a second, part-time job does not count as income. All household income must be included, even the $300 per month your son earns working part time while in school. If you want to claim him as a dependent in your bankruptcy, you must include his income.
Don't Leave Out Cars
Clients always say, "I don't want to lose my car. Why are you listing it in the paperwork?" The car is an asset (or a liability if it is secured by a loan). It must be listed, and the court-appointed trustee reviewing your case must know about every car you own. Even a car driven by your son, which was never transferred into his name, must be listed. And don't transfer it to him prior to filing. That's the best way to lose it.
Don't Leave Out Creditors
Every month, a former client calls and says that he or she cannot use a particular credit card even though that card was not listed in the bankruptcy. The majority of credit card companies centralize the processing of credit card payments and services. Card companies will know that you filed for bankruptcy protection even if you don't have a balance on that particular card. So don't try to hide a credit card. You can get new credit after the bankruptcy. It is not worth it to leave out any creditor.
There is one big exception to this rule, and it pertains to credit unions. You may be able to keep an account with a credit union after filing for bankruptcy. Discuss this option with the credit union before filing your case.
Don't Transfer Assets out of Your Name Before Filing
Transferring an asset prior to filing for the purpose of protecting that asset is illegal. Just because you have an asset you want to protect does not mean you can give it away. A competent bankruptcy attorney can discuss how to legally protect an asset that might otherwise be at risk.
Don't Pay Back Family Prior to Filing
You may owe your mother $10,000 and have every intention of paying her back. Just don't pay her back in the 12 months prior to filing. No matter what you think, she is still a creditor like your department store or bank where you hold your credit card. However, the bankruptcy code looks even more harshly on payments made to family prior to filing. Know the rules concerning payment to creditors prior to filing your case.
Don't Forget to List All Potential or Pending Lawsuits you Have Against Anyone
You are suing your former employer for unpaid wages, or you are suing your former best friend for unpaid rent. Those are assets and must be listed as such in your bankruptcy paperwork. You may be able to continue with the case, but the court-appointed trustee must know about those claims or potential claims.
You may even lose the right to continue with a potential lawsuit because the court-appointed trustee might be interested in taking over your lawsuit on your behalf. The lawsuit becomes an asset in your bankruptcy case and may have significant value. This is a complicated topic, but failing to list potential or pending lawsuits is a common mistake made by bankruptcy filers.
Don't Gamble
Even gambling with your own money can have negative implications in bankruptcy. Any gambling losses in the 12 months prior to filing must be disclosed in the bankruptcy paperwork.
Don't Run Up Credit Card Balances Prior to Filing
Many potential filers say that they are going to use up all their available credit before filing for bankruptcy. This usually does not work for the filer. The creditor will review your credit card charges after receiving the bankruptcy notification. If the creditor believes you ran up your credit card balances before filing, it has the right to challenge your request to eliminate some or all of your balance. You could end up owing money on a few of your credit cards after your bankruptcy is over.
Don't Wait Until the Last Minute
Don't wait until your wages are garnished, your bank account is levied, or your home foreclosure sale is the next day. You want to have the luxury to prepare a legal and thorough bankruptcy petition. Rushing your filing may not allow for a diligent and competent investigation of your bankruptcy qualifications.
Don't Become Depressed
Taking the ostrich approach to your situation will never resolve it. It is normal and reasonable for you to get upset or feel depressed that you are in a difficult financial position. Unfortunately, avoiding your financial straits will not resolve them. Sometimes, bankruptcy is your best solution.
Again, bankruptcy does happen to good people. Your case can go smoothly as long as you disclose all information required to receive your fresh start.