When you approach the bankruptcy process from an honest and informed perspective, you have an enviable opportunity to eliminate a crushing debt load and start over. Unfortunately, too many debtors are dishonest or uninformed, causing them to risk dismissal of their case and, in some cases, charges of bankruptcy fraud.
Before you file, make sure that you avoid these common (and very big) mistakes.
- Failing to check the timing of your bankruptcy petition
This is a common mistake for second-time filers. If you filed for Chapter 7 in the past and were discharged, then you cannot file for the same chapter again until eight years have passed.
- Paying family and friends before filing
The U.S. bankruptcy law requires all creditors to be treated fairly. If you pay insider creditors (as family and friends are called) first, then those payments can be undone by your bankruptcy trustee if you made them within one year before filing. In other words, if you used $500 from a tax refund to repay a loan from your brother and then filed Chapter 7 three months later, then your brother could be sued to recover the money.
- Transferring property before filing
If you transfer property for anything less than its entire value before you file for bankruptcy, then it will be treated as suspicious. This is because too many debtors transfer property to family or friends to hide it from the bankruptcy court.
Anything that does not appear to be an honest exchange can be undone later. You could also be denied a discharge and prosecuted for bankruptcy fraud.
- Racking up more debt
Unfortunately, too many people max out their credit cards or take out huge payday loans within weeks or even days before filing for bankruptcy. When you incur more debt without having the means or intention to repay it, you risk being charged with fraud.
- Cashing out your retirement money
Many people assume that when they file, their retirement funds will be seized to pay creditors, so they cash out their savings to keep it from being taken. The truth is that most retirement funds are exempt and cannot be touched by the trustee. Unfortunately, when your IRA or 401(k) retirement funds are converted into cash, they are no longer protected, and the money can be seized.
If you are struggling financially and considering bankruptcy, then discuss your situation with a New York bankruptcy lawyer. Your attorney will be able to advise you how to avoid the common mistakes that can jeopardize your discharge and even your record. Jayson Lutzky is a personal bankruptcy attorney with over 35 years of legal experience. If you are considering filing for bankruptcy, then set up a free in-office initial conversation with Mr. Lutzky. Saturday appointments are available. You may reach Mr. Lutzky’s office by calling 718-329-9500 or visiting www.MyNewYorkCityLawyer.com.