Heed these seven precautions when filing for bankruptcy.
When financial debts become overwhelming and there appears to be no other way to pay off debt, bankruptcy laws make it possible for an individual or a married couple to get rid of debt and start anew.
Yet, there are certain measures that need to be followed in the time before you file for bankruptcy.
1. Divulge all information about your financial situation.
It’s very important to inform your attorney, trustee and the court about all information dealing with your financial situation. You need to disclose all your debts, assets and income, as well as any other financial matters. If you withhold information, your case may be dismissed or you may receive a fine.
2. Discontinue using your credit cards.
Several months before applying for bankruptcy, stop using your credit cards. This especially applies to credit card purchases that are non-essential such as electronic equipment, jewelry and other luxury items. These kinds of charges are non-dischargeable and you will have to pay those debts when your bankruptcy proceedings are finished.
3. Keep your retirement accounts intact.
Retirement accounts such as Roth IRAs, IRAs, 401(k) and 403(b) have special tax provisions. It’s not a good idea to borrow against these funds to pay other debts because, in almost all cases, creditors aren’t allowed to touch these funds.
4. Keep property in your name.
Even though it may seem like the best thing to do, transferring property to another person or selling it for less than market value is not a wise decision.
Neither is giving away items such as cars, homes and boats just before filing for bankruptcy. Later on during bankruptcy the trustee can unravel the transfers and this can cause real problems. Selling property at fair market value is usually okay.
5. Retain the equity in your home.
It’s not a good idea to take out a second mortgage on your home before filing. In the majority of cases, you can keep the equity in your home through the bankruptcy proceedings. It is protected.
6. Avoid paying off debts.
Some people planning for bankruptcy have misconceptions about the wisdom of paying off their debts. You might decide to pay off your debt to a creditor that you know and like. If you pay off one creditor but not the others, things can get complicated. In bankruptcy, all creditors get equal treatment. The trustee can get the money back from the paid creditor and will divide it equally.
7. Attend the creditor’s meetings.
Attend these meetings without fail. It is mandatory that bankruptcy filers appear. During this meeting, the trustee asks you questions under oath. If you aren’t in attendance, you risk having your case dismissed.
Filing for bankruptcy is an important step in providing applicants a new start in solving their financial problems. However, you must learn about bankruptcy laws to avoid making mistakes that will be detrimental to your case.
This article about bankruptcy filing precautions was written by Ava Summers.