Nobody likes the idea of filing for bankruptcy. But when all other options are exhausted, declaring bankruptcy can be a useful way to escape lifelong debt and get back on your feet. Like all legal processes, though, there’s a right way and a wrong way.
If you go about it correctly, you’ll be rewarded with a fresh financial start. If you don’t, however, you could end up with additional debts or even go to prison. To avoid the negative consequences of bankruptcy, make sure you refrain from the following actions when filing for bankruptcy.
Lying to the Bankruptcy Court
When you file for bankruptcy, you must be honest and accurate with all of your financial information. Even if it’s unintentional, misleading the court about the state or history of your finances can result in stiff criminal penalties.
Furthermore, correcting a mistake can be costly and often prolongs the process. If you intentionally mislead the court, you’re almost certain to face jail time.
Moving Assets
The court may perceive an attempt to move assets before or during the bankruptcy filing process as intent to defraud.
This is essentially a more specific version of lying to the court about your finances. If you have a good reason for wanting to move certain assets, you’ll need to inform the court and get permission before doing so. The last thing you want is to make it look like you’re trying to outsmart your creditors.
Accessing Your Retirement Funds
Many people think that their retirement funds are in danger when they file for bankruptcy. This belief causes them to either spend their retirement funds before they lose them or attempt to hide them in some way. Both are mistakes.
Retirement funds are typically shielded from the bankruptcy process. This means that the safest thing you can do with your retirement accounts is nothing. You won’t gain anything by spending your retirement funds, and you could face tax penalties or other fines if you access them early.
Acquiring New Debt
It’s a common misconception that filing for bankruptcy clears all of one’s debt. While that’s mostly accurate, there are exceptions to the rule. One significant exception is if you acquire new debt within three months before filing.
New debt is generally treated as a liability that you’ll still be responsible for paying after declaring bankruptcy. Furthermore, the court might look poorly on your case if you’re still racking up debt with the prospect of bankruptcy looming rather than trying to live within your means.
It may be challenging if you don’t have a reliable source of income, but do your best to avoid falling into new debt before you file for bankruptcy.
Selectively Paying Off Debts
Paying off debts to certain creditors but not others is roughly the equivalent of moving your assets. By picking and choosing the creditors that get your money, you’re effectively defrauding the others.
Your best option is to pay back all of your creditors in roughly equal proportion when you can afford to. By doing so, you’ll be making a show of good faith to the court that you’re trying to repay what you owe.
Not Hiring a Bankruptcy Lawyer
While it’s technically possible to file for bankruptcy without a lawyer, it’s not a very wise thing to do.
A bankruptcy lawyer will ensure that you follow the law and file all of the necessary paperwork properly and promptly. Even if you don’t think you can afford representation in your bankruptcy case, it’s still a good idea to consult with an attorney to discuss your options.
If you’re considering filing for bankruptcy in Palm Springs, CA, contact the experienced bankruptcy attorneys at Heritage Legal, PC.