Many people filing bankruptcy make common mistakes because they just don’t understand how the process works. In a perfect world, it’s best for an individual to educate themselves about how a bankruptcy filing works and the timing involved. This can be easily done by spending some time on the Internet and reading articles and information on legal websites. It’s best to make sure that the information one is reading is local to their area and that it is current. Filing bankruptcy is a legal process and this means that laws change so when the information they looked up is old, it might not even apply to one’s bankruptcy filing. After getting a basic education it is best to bounce all this information off of a bankruptcy attorney. Most bankruptcy attorneys will gladly give an individual in need of free consultation.
During this consultation it is a good idea for the individual to take a look around and ask a lot of questions about the law firm and the attorney. This is a good time to find out whether or not this would be a good attorney that would work well with the individual filing. The individual will be able to share their personal financial situation. This will help the bankruptcy attorney understand the individual’s concerns prior to filing the bankruptcy petition. If the attorney doesn’t feel this bankruptcy is in their best interest, they will usually point them in the direction they should go.
Before filing bankruptcy don’t pay off family members and certain creditors. According to the bankruptcy code, while creditors are equal and it is considered a preferential payment to pay one over another. If you and I can pay someone it’s best to pay no one. In fact, why would you continue paying your debts that are going to be eliminated in the bankruptcy discharge? Another mistake that many people make prior to filing bankruptcy is borrowing from their 401(k) or IRA. This is another foolish move because all retirement accounts are protected by bankruptcy exemptions and cannot be touched by the bankruptcy estate. Once you take them out of that secured account, they become fair game for the bankruptcy trustee to take them and pay creditors.
This also can cause problems for an individual filing Chapter 7 bankruptcy. Since the changes to the bankruptcy code in 2005, a person is now required to qualify to file Chapter 7. Any money received including money taken out of a 401(k), IRA or even money or from a family member to survive financially is considered income by the bankruptcy court. Sometimes, depending on the amount, it will disqualify them from filing Chapter 7 bankruptcy. The best idea when considering filing bankruptcy is to go into a bankruptcy attorney and have a consultation before any mistakes are made. Doesn’t mean you have to file that day, but it might send you in that direction in the future.