Filing for bankruptcy is a difficult decision and is going to change someone’s life. On the other hand, there is also a chance that this can be a positive experience. There are many people who believe that filing for personal bankruptcy is a sign that they have horribly mismanaged their finances; however, this is not usually the case. According to a study that was published recently, two-thirds of people who file for bankruptcy make this decision because of medical bills. Each year, more than half a million people file for bankruptcy directly due to medical bills. Too often, individuals and families do not realize that having health insurance is not enough financial protection. Deductibles, lifetime maximums, and coinsurance can destroy someone’s ability to pay their debts.
This is where bankruptcy can be helpful. While bankruptcy can provide someone with the opportunity to start fresh, it is also important for everyone to understand some of the most common mistakes people make. This can help everyone prepare for the process of starting fresh.
Lying About The Assets You Have
If someone is filing for Chapter 7 bankruptcy, this is what is called a means test. This filing requires you to disclose every asset you have in addition to your income. Then, the courts will decide whether or not you have the means to pay back your creditors. If you intentionally leave out income or assets in an effort to make your situation look worse than it actually is, you could have your case dismissed.
In addition, you might even be banned from filing bankruptcy with respect to those debts ever again. If you go through this process, someone called a bankruptcy trustee is going to have access to your financial records. Therefore, any discrepancies will be uncovered. Instead, tell the truth. Then, you will have the benefit of the bankruptcy protection to which you are entitled.
Forgoing an Attorney
The reality is that filing for bankruptcy is a complicated process. For those who don’t work in this field on a regular basis, it is nearly impossible to understand. That is why it is critical to enlist the help of an experienced bankruptcy attorney.
An experienced lawyer in this field is going to know the subtleties of this process which might escape the average person. For example, a child in the home with a part-time job might have income that is counted towards the total income of the household in specific situations. A specialized lawyer will know how to protect as many assets as possible. Even though many people want to save money as they go through bankruptcy, an experienced lawyer might be able to preserve additional household assets which ends up as a financial win for the individual or family filing for bankruptcy.
Giving Away Assets to Family Members
This is one of the most common red flags when people file for bankruptcy. There are some people who file for bankruptcy and give away valuable assets to their family members for protection during the process. This might include cash, cars, jewelry, electronics, and even property. Then, they will ask for it back after bankruptcy.
This is simply dishonest. Anyone who is caught doing this is going to lose those assets. For those who still owe money, these assets should be listed as a liability. Engaging this practice could lead to fines and criminal charges.
Taking Money Out of the 401(k) or IRA
Some people think it is a good idea to raid their retirement accounts as a way to stash away money or pay off some of the creditors before filing for bankruptcy. While it may seem like a good idea to pay down some debts ahead of time, this is actually not allowed. People filing for bankruptcy are not allowed to show preferential treatment to some creditors but not others.
Furthermore, retirement accounts are actually exempt when filing for bankruptcy. Therefore, raiding a traditional IRA, SEP IRA, Roth IRA, Keogh plan, pension or 401(k) actually means removing assets that are otherwise protected. Therefore, leave them in place! They are actually protected and cannot be seized by creditors during bankruptcy filings.
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Filing for bankruptcy is a big decision. For this reason, it is important for everyone to have the guidance of a trained legal professional. If you are considering a bankruptcy filing, contact us today. We are here to act as your guide as you seek a fresh start financially.