Filing for bankruptcy can provide you with a way to deal with your debts and begin getting your finances in order. To make sure you reap the full extent of the benefits this process offers, it is important to do it properly.
There are some common mistakes people make when embarking upon the bankruptcy process. Steering clear of them can help things go smoothly for you. Additional considerations may apply, depending on your individual situation.
Repaying some debts before starting the process
People who get into financial difficulties often resort to borrowing from friends and law at some point. It can be natural to want to repay these debts outside the bankruptcy process, as otherwise these creditors, like all others, may receive less than the full extent of the debt owed to them. However, doing so soon before filing for bankruptcy may be considered a preferential payment. The trustee may have the right to demand that the creditor repay these funds, leaving your friend or relative potentially worse off had you not made the payment.
Exhausting retirement accounts
Another way many people try to stave off bankruptcy is by withdrawing money from their pension funds to pay off debt. Unfortunately, in many cases, these funds are not enough to pay the debts in full and the person still ends up filing for bankruptcy. What many people do not realize is that most types of retirement accounts do not go into the bankruptcy estate. It is better to keep your retirement funds safe and let the bankruptcy process help you address your debt.
Omitting assets or liabilities
One more common error that can cause problems is submitting an incomplete list of assets and liabilities. When filing for bankruptcy, you have to present a full list of everything you own and everything you owe. Failing to do so can delay the process at best and result in accusations of fraud at worst. Be sure to review your list carefully. If you gave away an asset but never changed the title, or lent out an item and never ended up recovering it, these assets still belong on the list.