Filing for bankruptcy can help you handle accumulated debt and start the path back to financial stability. However, many people make mistakes that cause problems during the process and prevent them from fully accessing the help they need.
Whether you decide to file a Chapter 7 or Chapter 13 bankruptcy, steering clear of the following errors can make matters easier for you.
Leaving out assets and debts
When you file for bankruptcy, you need a complete and accurate list of assets and liabilities. Omissions can cause delays, rejection of your petition and even accusations of fraud. Some items people tend to forget include assets they gave away or lent out without transferring title. If you have been letting a cousin use your old car for the past couple of years, you may not realize you still need to list it as an asset. By the same token, you should generally also include debts you owe to relatives and friends.
Giving preferential repayments
In many bankruptcies, creditors often end up recovering only a portion of what you owe to them. People who have borrowed from friends and family members may not want them to lose out in this way and pay these debts before filing. The law considers such a repayment preferential and frowns on it, as it results in a diminished bankruptcy estate for the other creditors to share.
Making assumptions about what will happen
You may have heard about types of debts that bankruptcy cannot help with. Generally, this category includes many types of taxes, student debt and court-mandated payments such as civil judgments or fines.
However, making assumptions can be damaging. Consulting with a professional and describing your situation in detail can produce solutions you may not have been aware of. For example, under some circumstances, bankruptcy can help with income-tax debt.