Common Bankruptcy Mistakes
Bankruptcy can work to your advantage if you are well informed about the options and avoid common mistakes. There is often an advantageous and disadvantageous time to file a bankruptcy petition. Rushing to file can be a mistake. With this in mind, you may need to consider engaging a lawyer to assist you. This is certainly the case if you file chapter 11 bankruptcy. However, it could equally apply to other forms of bankruptcy depending on your knowledge of the procedure, and it is often the case that the first consultation with a lawyer is free.
Another reason not to rush to file a petition is that the timing may not be advantageous. For example, you may be burdened with personal consumer debt and medical debt and be in need of relief from creditors. However, if you anticipate accruing additional medical expenses in the near future, the best option in such a situation would be to wait, as these debts can be included in the bankruptcy petition allowing you to have this additional and unavoidable debt reduced or discharged.
However, do not confuse this logical approach to unavoidable debt with the mistake of embarking on a spending spree purchasing luxury goods in the interim period prior to filing. Actions of this kind are consider fraudulent by credit card companies and can draw unwanted negative attention.
Consider the cash you have available in your bank account before filing. Firstly, it may be advisable to use this cash in legitimate ways to reduce non-dischargeable debts before you file a petition. Once you file, that money may be seized by the trustee. Alternatively, it may be seized by your bank if you have an account and credit card debt with the same bank.
Conversely, do not delay looking into the bankruptcy option because you fear the loss of all your property and assets. Bankruptcy is intended to relieve the burden of debt, not make life untenable for the debtor. Only chapter 7 is a liquidation approach to bankruptcy, but even then, there are limits. Other approaches help reduce and reorganize debt enabling the retention of assets.
On the subject of delays, another common error that people make with reference to bankruptcy is putting off the inevitable until is too late and most major assets have already been lost to foreclosures. Sometimes people delay because they fear being stigmatized by being bankrupt. However, unless you are famous, few people other than creditors get to know of your status, and they already know.
Some people make valiant attempts to manage debts that are unwise and cause more trouble long term. For example, do not take a lien against your property to pay off credit card debt or deal with other unsecured debts that can be discharged. This is a mistake which can lead to the unnecessary loss of property, as this well-meaning but unwise action gives the previously unsecured creditor access to assets and is likely to lead to the loss of assets that were previously exempt.
Above all, provide all the required information when making a disclosure, and do not hide debts from your lawyer or trustee. Hidden debts are not discharged meaning the creditor can still take action at a later date.
Seek advice, proceed cautiously, but not too cautiously and be honest about your situation.