If you face significant financial pressure, bankruptcy can be the right option to help you get your financial house in order. Depending on your circumstances, a Chapter 7 or Chapter 13 filing can present an effective way to handle debt. As with any legal matter, it is important to carefully prepare for the bankruptcy process. Many people commit errors that cause them a variety of problems along the way. In addition to watching for the following mistakes, it is wise to also consult an experienced attorney who can advise you based on your individual situation.
Leaving items off asset and liability lists
One of the first things you have to do when preparing to file is to compile a complete list of assets and debts. Sometimes, people inadvertently leave certain types of items off this list. It is important to remember that if you have legal title to property such as land or a vehicle, it counts as your asset, even if you lent it out or gave it away. You also need to include debts you owe to friends and family members.
Paying some creditors separately
On a related note, people often do not think of debts to friends and relatives in the same way as “official” debts owed to credit card companies or the IRS. Nevertheless, any such debts form part of the bankruptcy process on an equal footing. You may not pay off specific debts before filing for bankruptcy; such an action is sometimes called a preferential payment. The creditor may have to give it back. This is because the law does not consider it fair for some creditors to get full payments while others only get a share.
Increasing spending before filing
If you make large expenditures in the time period preceding your filing, the bankruptcy court may view this as a red flag. Spending while knowing you intend to file for bankruptcy can be seen as a calculated attempt to defraud creditors.