Homeowners sometimes find themselves in trouble by making some common mistakes in filing for bankruptcy.
One of the most important ways to avoid mistakes is by meeting with your attorney before you begin any bankruptcy proceeding. They’ll tell you exactly what to do and, just as important, what not to do.
One of the biggest mistakes people make involves what are called “non-exempt assets.” People try to get their name off of the asset by conveying it to someone else. They give a piece of property, for example, to their brother, or they take their name off of a bank account. Or they take $20,000 out of a bank account, again, for example, and move it to someone else’s bank account. Both actions are considered fraudulent, and those actions can be undone by a bankruptcy trustee.
The important thing to remember here is that the list of examples is long. It’s impossible to create a checklist that covers every possible eventuality. That’s why it is so important to meet with your attorney before you take any action. Tell your attorney exactly what you are thinking about doing before you do anything.
The good news — going back to our example regarding non-exempt assets — is that there are ways legal ways to convert non-exempt assets into exempt assets. A good bankruptcy attorney is going to know how to do that without running afoul of the rules.
Another major no-no is to run up a large amount of consumer debt right before filing for bankruptcy. The mistake here, obviously, is thinking that someone could buy of lot of stuff and then not have to pay for it after filing for bankruptcy. Creditors have options to take action against someone who did this, including suing the person during the course of the bankruptcy. They can seek to have that debt declared “non-dischargeable,” which means the person can’t get out of it.
What I generally tell people considering bankruptcy is to stop using credit and stop paying credit. That will solve or prevent a lot of potential problems. But, again, there’s more to it than that, which is why it is imperative to plan a bankruptcy ahead of time.