Bankruptcy Mistakes and How to Avoid Them

Posted January 7th, 2010 by BankruptcyLawyer

Bankruptcy conjures of feelings of hopelessness, failure, and despair. No one wants to turn to bankruptcy. Even worse, some let their fear of the unknown lead them into dangerous traps, and they can make some serious mistakes while filing for bankruptcy. With a little forewarning, you may be able to avoid these common mistakes.

The first mistake some debtors make is to liquidate all their monetary assets prior to filing. They may cash in an IRA, or a 401(k). Many don’t realize that in many cases, retirement assets are protected from bankruptcy, and by forfeiting them, you may give up your future security. Avoid this by considering bankruptcy before you resort to using any retirement funds.

Retirement funds may be exempt from bankruptcy liquidations

You may have to liquidate some monetary assets during a bankruptcy, but in general, retirement funds are safe from creditors during a bankruptcy. Don’t fall into this common mistake by withdrawing any retirement money before maturation.

Debt Management (without a lawyer’s help) may be a mistake

Debt management companies are often a big mistake for people who are unfamiliar with the bankruptcy process. Debt management companies may seek to profit off you by misleading you about the difficulty of handling your debt. Even worse, it’s not unheard of for debt companies to restructure your debt, and then take your money and never pay creditors. Act with extreme caution with these companies.

An experienced bankruptcy attorney can help you. Allow a knowledgeable attorney to work with both the debt management firm and your creditors if you decide to go with a debt management company. This will ensure that you protect yourself, and that the company actually follows through with the structured plan.

Keep transfers legal during the bankruptcy process

One common mistake that debtors declaring bankruptcy can make is in transfer fraud. It can be very tempting to give assets or valuable to friends to protect them from being seized during a bankruptcy, but this is against the law, and will likely be discovered. This kind of fraud also includes selling items far below their worth. Work with a bankruptcy lawyer when making any transactions to ensure that you do everything legally. Some kinds of transfers are acceptable, and it’s important to know which these are.

If you’re making a transfer in good faith, or through a normal business transaction, then you are protected from claims of fraud. If you are accused of fraudulent activity, however, your bankruptcy lawyer will be able to represent you to defend your case.

Beware Credit Scams

Credit card companies, banks, and predatory lenders may have had a hand in your financial woes. Work with your legal team to make sure that you’re not allowing these financial disasters wreck your chances of having a clean slate.