Filing for bankruptcy is a big financial decision that should be taken seriously and is usually a last resort. It’s important to understand some simple things before you go through with it. From where I stand, these mistakes are surprisingly common, and the sad part is, they are all preventable. Planning ahead is key to making sure things turn out well for you and your family.
- Be Careful with Credit Cards: Exercise caution with credit cards, especially after deciding to file for bankruptcy. Accumulating more debt that you don’t intend to repay can jeopardize your ability to discharge it through bankruptcy. This is particularly true for credit card debt, as substantial amounts accrued just before filing may face closer scrutiny. Amendments in 2005 limited luxury purchases to $500 and extended the examination period to 90 days before filing. Additionally, be aware that cash advances exceeding $875 obtained within 70 days of the bankruptcy filing date are presumed to be non-dischargeable according to the Bankruptcy Code.
- Don’t Repay Family: You must treat family members the same as other creditors when considering bankruptcy. Legally, relatives hold an equivalent standing as other creditors, and any preferential treatment towards them is not allowed. There are situations where the trustee can recover the funds paid to a family member and redistribute them among all creditors in the same category. It’s important to follow legal guidelines and treat all creditors, including family members, fairly and equally in the context of bankruptcy proceedings.
- Keep Your Stuff in Your Name: Avoid transferring property out of your name before filing for bankruptcy. The Trustee has the authority to reverse property transfers if they were not conducted at a fair price or if done with the intent to defraud, hinder, or delay a creditor. This applies to transfers made to friends or relatives as well. It’s essential to be cautious about property transactions leading up to bankruptcy, ensuring transparency and fairness to avoid potential legal consequences.
- Be Smart with Your Home Loan: In Illinois, you’re allowed to claim an exemption for the equity in your home during bankruptcy. This exemption lets you keep that equity throughout the bankruptcy process. However, if you use your equity line to pay off debts or take out a second mortgage, you might unintentionally transform debt that could have been discharged in bankruptcy into debt you’ll still be obligated to pay to retain ownership of your home. It’s crucial to carefully consider the financial implications and consult with your attorney before making such decisions to ensure the best outcome for your home and financial well-being.
- Keep Your Retirement Savings: Your retirement savings are usually protected in bankruptcy, regardless of the chapter you file. There’s no requirement to liquidate your retirement funds before filing. Some individuals choose to liquidate, but they may still owe significant amounts. Moreover, withdrawing funds early exposes you to penalties and taxes that might not be discharged in bankruptcy. It’s essential to carefully consider the implications and potential consequences of tapping into your retirement savings before filing for bankruptcy. Consulting with a knowledgeable professional can help you make informed decisions aligned with your financial well-being during this process.
- Talk Honestly with Your Lawyer: The courts treat rule violations seriously and may pursue criminal charges in cases of intentional fraud. Even if criminal charges are not filed, the court has the authority to deny the discharge of a specific debt or dismiss the entire bankruptcy case. Addressing concerns within the framework of the bankruptcy code is possible for many issues. It is crucial to communicate openly and honestly with your attorney about all financial matters. Your attorney acts as an advocate for your desired outcomes, and full disclosure enables them to provide the best assistance. Remember, being upfront with your attorney enhances their ability to guide you through the bankruptcy process effectively and achieve the outcomes you seek.
Remember, bankruptcy is a tool to help you get back on your feet financially. Using it wisely means being careful and honest about your situation. Talk to a lawyer, and they can guide you through the process in a way that works best for you.
