Five Avoidable Mistakes When Considering Filing for Bankruptcy
Often times in the months leading up to filing for bankruptcy individuals try to rectify certain debts or take extreme measures to avoid filing for bankruptcy. There are numerous things that people commonly do before filing for bankruptcy that may end up causing more problems in the long run. Some of the most common pitfalls are as follows:
1. Do not take out additional mortgages on your house or loans on retirement accounts to pay off debts. Often times people take out additional mortgages, which are secured loans, to pay off other unsecured loans like credit cards and medical debt. This may have a few unwanted implications. If you take out additional mortgages and are unable to make payments towards that the debt is then secured by your home and debtors may foreclose upon your house to recover the amount owed. Once your house is foreclosed upon all of your legal rights to the house are lost permanently. Even if your house is not foreclosed upon the debt which is now secured, and bankruptcy will not eliminate this debt. At this point, if you wish to protect your house you will have to file a Chapter 13 bankruptcy, which does not modify the ongoing mortgage payments, but would allow you to catch up on arrearages over 48 months.
2. Do not make any payments to family members or friends in the year leading up to filing for bankruptcy. This rule includes money given as a gift and money repaid, even when owed, to a friend or family member. This would not include payment of rent if you live with a family member or friend. The reason you should avoid these types of payments is that any payment made to a family member or friend in the year before filing is considered fraudulent by the Bankruptcy Code, without consideration of the actual merits. This transfer can then be voided and the trustee may sue your family member or friend to recover the money which may lead to further issues. While your bankruptcy would discharge the debt the the family member or friend you could certainly opt to voluntarily repay the debt after completion of the bankruptcy.
3. Do not transfer personal property within the two years leading up to bankruptcy in an attempt to hide assets. You will be asked about this type of transfer and either the trustee or the courts can avoid the transaction.
4. Do not attempt to pay off particular creditors before a bankruptcy. If you make a payment of more than 600 dollars to any one creditor in the months leading up to bankruptcy the trustee may void that payment, sue the recipient, and recover that money.
5. Try not to cash out retirement accounts or IRA’s unless you truly do not have any other options. Many retirement accounts are protected by bankruptcy law. This means that if you do not cash them out they are protected by bankruptcy and they will still be available in accordance with the terms of the account after filing.
If you are considering filing for bankruptcy you should speak with a St. Louis Bankruptcy Attorney as soon as possible.