Before you file for bankruptcy, you should carefully plan with your attorney to steer clear of mistakes that could prove costly. Here is a list of common mistakes that you should avoid:
- Trading unsecured debt for secured debt: Avoid paying off debt with money from a home equity loan or second mortgage. When you file for bankruptcy most of your unsecured debt is discharged. If you take out a secured loan, you could risk losing whatever you put up for collateral if you miss too many scheduled loan payments.
- Transferring property or assets out of your name: Many people mistakenly believe that they can protect their property from creditors by giving it away before they go bankrupt. Remember, some property like homes, cars, jewelry and cash fall under an exemption category and may be protected under bankruptcy. And, the transfer might not be effective anyway. The bankruptcy trustee can recover non-exempt property depending on when the transfer was made. Also, you may risk losing the ability to get a discharge depending on when the transfer was made.
- Paying off debts with money from retirement accounts: Most pensions and qualified ERISA retirement funds are protected in the bankruptcy process. Money pulled from most retirements accounts are subject to tax and perhaps penalties. Don’t use these accounts to pay off unsecured debt that most likely will be discharged in your bankruptcy.
- Hiding information from the bankruptcy court: Be sure to accurately list all of your assets and debts on your bankruptcy petition. You are allowed to amend your petition if you make a mistake, but intentionally hiding information will cost you when the trustee makes the discovery.
- Concealing vital information from your attorney: any information relating to your debt or assets is vital for your attorney. When you withhold information your attorney is not in a position to protect your rights.
Careful planning with a bankruptcy attorney can help you avoid making costly mistakes.