Having financial constraints and being unable to pay your bills and keep up with your expenses can feel like an impossible situation. If you are in such a position, bankruptcy is an option that you may consider.
If you are thinking about filing for bankruptcy, you should avoid certain actions. Get to know some of these avoidable mistakes. Then, you can be sure that you are doing what is best for your financial future.
Don't Make Large Payments to Creditors First
You may be tempted to try to pay down some of your debts before you file for bankruptcy. However, making a large payment to one of a few of your creditors right before you try to file for bankruptcy is a major mistake. If you do so, the bankruptcy courts would assume that you have enough money to pay your bills and could deny your bankruptcy claim on that basis, depending on the size of the payment.
Additionally, if you make a large payment within 90 days of filing for bankruptcy, the courts can actually sue to get that money back and to include the debt in the bankruptcy proceeding. This includes any large payments you make to family members to pay off a debt you owe them.
Don't Gain Any More Debts
Once you have it in your mind that you might file for bankruptcy, you should avoid gaining or accruing any additional debts. Do not open a new loan account or credit card account. You should also avoid adding to the balances that you already have.
Adding to your debt load could call your bankruptcy into question. For example, if you are adding debts, it might seem like you are trying to get goods or services for free. This could be considered bankruptcy fraud. As such, take all of your credit cards out of your wallet when you are planning to file for bankruptcy and cut them up. You should not use them under any circumstances.
Don't Panic About Your Major Assets
One of the things that people most fear when they file for bankruptcy is that they will have all of their assets seized in the process. The reality, though, is that many assets may be exempt from being sold to pay creditors in a bankruptcy proceeding.
For example, your home is generally considered an allowable exemption in bankruptcy. If you have a second home, though, that may be sold off. Any home that is not your primary residence is fair game.
A car is also often an allowable exemption in bankruptcy. The court recognizes that most people need a car to get to and from work. Although, sometimes, cars may still be sold by the bankruptcy trustee, especially if they are second or third cars. There are also caps on the worth of a vehicle that you can keep, and these caps vary by state.
Don't Make a Quick Decision
When you are dealing with financial problems, it can feel like the whole world revolves around how much money you do or do not have. However, if you step back and take a breath, sometimes things can calm down a bit. You need to stop and think carefully before you make a decision, whether you end up filing for bankruptcy or not.
Bankruptcy has long-lasting effects on your life and your credit. It is not a process that should be taken lightly. Take your time making the decision about bankruptcy.
Have an initial consultation with a bankruptcy attorney and discuss your financial situation. Then, take the time to ponder your options. You may, for example, have the option of filing either chapter 7 or chapter 13 and need to determine which is the right option for you.
Now that you know the things you should not do before filing for bankruptcy, you can better prepare for the bankruptcy filing process. The next step will be to contact a bankruptcy attorney to set up your consultation appointment. Contact us at The McMaster Law Firm, LLC today.