3 Common Bankruptcy Mistakes to Avoid

It is not uncommon for people to make mistakes when they file for bankruptcy. Many of these mistakes are avoidable if the person filing is aware of them and takes care to avoid them. If you are thinking about filing for bankruptcy, you should be aware of some of the most common mistakes people make so you can avoid them. Applying this knowledge to your situation could potentially save you thousands of dollars and a lot of frustration.

1. Incurring Additional Debt or Transferring Assets Out of Your Name Prior to Filing

Not all debt is dischargeable when you file for bankruptcy, and the law does not allow you to protect large assets by gifting them away to relatives or friends. You will not be able to discharge certain types of credit you accumulated just before filing for bankruptcy. You also cannot prevent the court from seizing your most valuable assets by simply giving them away before you file. Your friends and relatives may have to return money, cars, land, or other valuables you gave to them if you did so within a year prior to filing for bankruptcy. You can read more about avoiding non-dischargeable debt in our blog post on the subject here.

2. Filing Under the Wrong Chapter

You will want to make sure to file for bankruptcy under the bankruptcy Chapter that will be most favorable to your specific situation. The two most common types of bankruptcy individuals file under are Chapter 7 and Chapter 13 bankruptcy.

Chapter 7 bankruptcy liquidates most of your assets. It allows you to discharge most of your unsecured debt such as credit cards and personal loans while keeping larger, secured assets like your house and car.

Chapter 13 bankruptcy reorganizes your assets and liabilities and puts you on a repayment plan. It can protect more of your assets than Chapter 7 bankruptcy but will require you to negotiate a repayment plan with your creditors to pay off assets like your house and car.

Filing for bankruptcy under the wrong chapter could cause you to lose assets you could have retained or hold on to debt you could have easily discharged. A bankruptcy attorney can look at your situation and help you file under the bankruptcy Chapter that will be most favorable for you.

3. Delaying Getting Legal Help

Bankruptcy law is very complicated, and each person’s financial situation is unique. A delay in hiring an attorney can cause you to make mistakes that an attorney could have helped you avoid. These mistakes could cost you thousands of dollars and hurt you financially for years to come.
This post only discusses some of the most common mistakes people make when filing for bankruptcy. A good bankruptcy attorney can help you develop a plan to discharge as much of your debt as possible and save as many of your assets as you can.

If you are considering filing for bankruptcy and have questions about what to do before filing, contact the experienced Indiana bankruptcy attorneys at McNeely Law to discuss your options.

This McNeelyLaw LLP publication should not be construed as legal advice or legal opinion of any specific facts or circumstances. The contents are intended for general informational purposes only, and you are urged to consult your own lawyer on any specific legal questions you may have concerning your situation.