Many people believe that bankruptcy is a “get out of jail free” card. The truth is, though, that bankruptcy is more like a last ditch-effort to protect yourself financially more than anything else. If you are in a situation where you are nearing insolvency and cannot pay back your loans, you may need to file for bankruptcy. Filing for bankruptcy will legally eliminate your debt, but will not protect some of your assets. The proceeds from selling off your assets will go towards paying back some or all of your debts. This is the reason why you don’t want to make one of the many common mistakes that people make during bankruptcy proceedings. After all, you don’t want to lose everything. Here are five common bankruptcy filing mistakes to avoid.
- Not understanding what bankruptcy is. When filing for bankruptcy, you never want to make the common mistake of jumping the gun. Many people don’t need to file in the first place and can probably find other avenues to pay back loans. If you have a small financial dispute, you can probably resolve the issue in small claims court. In most cases, bankruptcy is reserved for major financial quandaries, like credit card debt and large business debts. Before you file for bankruptcy, you may want to contact a legal firm, like The Ballard Law Group, to discuss your options and to learn more about proceedings.
- Not filing for the right bankruptcy chapter. There are actually multiple chapters of bankruptcy and each has certain guidelines when it comes to protection of assets and other monies. Out of all the bankruptcy proceedings, about 60% are Chapter Seven, which protects individuals who may be insolvent and cannot pay back loans. Moreover, Chapter 13 bankruptcy is reserved for individuals as well, but specifically in the case where major assets, like property is at stake. So, before you file, make sure you get your filing numbers right.
- Not filing the right forms or signing the right documents. Bankruptcy is not a one-document process – it is a multi-document process that requires a lot of reading between the lines and close attention. Even some legal experts are challenged by the prospect of filing for a client’s bankruptcy. So, if you are representing yourself, you may want to prepare yourself for the challenge or seeking legal counsel.
- Not protecting and certifying exemptions. Many people come out of bankruptcy proceedings with their heads spinning and wondering how they just lost everything. Well, this is often due to the mistake of not underlining and protecting some of their most prized assets. In most bankruptcy proceedings, you can fight to hold on to some assets, like your vehicle or home, but you have to know the law inside and out.
- Not taking a credit counseling course before starting proceedings. In most bankruptcy proceedings, individuals are required to take a course to learn about the process and to evaluate certain financial expectations. The course must be completed before the proceedings if you want to complete the filing process. Typically, the counseling session only lasts about one to two hours. In the end, not only is the course legally required – it will also help to understand what you are up against.