How to Avoid Common Mistakes When Filing for Bankruptcy

Filing for bankruptcy is a serious decision that can have long-lasting impacts on your financial future. While it can provide relief from overwhelming debt, the process is complex and fraught with potential pitfalls.

This article will guide you through common mistakes to avoid and offer tips for a smoother bankruptcy process.

Understanding Bankruptcy Basics

Before diving into common mistakes, it’s crucial to understand the basics of bankruptcy. The two most common types for individuals are Chapter 7 and Chapter 13 bankruptcy.

Chapter 7 bankruptcy, often called “liquidation bankruptcy,” involves selling off non-exempt assets to pay creditors. It’s typically for those with limited income who can’t pay back their debts.

Chapter 13 bankruptcy, known as “reorganization bankruptcy,” allows you to keep your assets but requires you to follow a repayment plan over 3-5 years to pay off some or all of your debts.

Common Mistakes to Avoid

Failing to Consider Alternatives

Many people rush into bankruptcy without exploring other options. Before filing, consider:

These alternatives might help you avoid bankruptcy altogether or at least put you in a better position if you do need to file.

Choosing the Wrong Type of Bankruptcy

Selecting the wrong type of bankruptcy can lead to unnecessary asset loss or an unmanageable repayment plan.

Consider your income, assets, and types of debt carefully when deciding between Chapter 7 and Chapter 13.

Timing the Filing Incorrectly

The timing of your bankruptcy filing can significantly impact the outcome. Common timing mistakes include:

  • Filing too soon after major purchases: Large credit card charges or luxury purchases shortly before filing may be viewed as fraud.
  • Filing before qualifying for certain exemptions: Some states require residency for a specific period before you can use their exemptions.
  • Filing before an expected large expense: If you anticipate major medical procedures or other significant expenses, it might be better to wait.

Failing to Disclose All Assets and Debts

Honesty is paramount in bankruptcy proceedings. Failing to disclose all assets and debts, even unintentionally, can result in your case being dismissed or even lead to criminal charges. Be thorough and transparent about:

  • All sources of income
  • All assets, including those you think are worthless
  • All debts, even those owed to family members
  • Any property sold or transferred in the recent past

Misunderstanding Exemptions

Exemptions allow you to protect certain assets in bankruptcy. Common mistakes include:

  • Not claiming all available exemptions
  • Misinterpreting exemption laws
  • Failing to understand the difference between state and federal exemptions

Research your state’s exemption laws carefully or consult a bankruptcy attorney to maximize your protections.

Continuing to Use Credit Cards

Once you’ve decided to file for bankruptcy, stop using your credit cards immediately.

Continuing to rack up debt when you know you can’t pay it back could be considered fraud and may make those debts non-dischargeable.

Paying Off Certain Creditors Before Filing

While it might seem like the right thing to do, paying off specific creditors (especially friends or family members) before filing can be seen as a preferential transfer.

The trustee can potentially undo these payments and distribute the money to all creditors equally.

Transferring Assets Before Filing

Transferring assets to friends or family members before filing is a major red flag. The bankruptcy trustee can reverse these transfers and may view them as an attempt to hide assets, which could lead to your case being dismissed.

Not Completing Required Credit Counseling

Before filing, you must complete a credit counseling course from an approved provider. Failing to do so or not filing the certificate of completion with your bankruptcy petition can result in your case being dismissed.

Ignoring Tax Implications

Bankruptcy can have significant tax consequences. Common tax-related mistakes include:

  • Not filing required tax returns
  • Failing to understand which tax debts are dischargeable
  • Not considering potential tax liabilities from forgiven debt

Consult with a tax professional or a bankruptcy attorney to understand the tax implications of your bankruptcy.

Failing to Follow Through with Chapter 13 Plan

If you file for Chapter 13 bankruptcy, it’s crucial to stick to your repayment plan. Missing payments or failing to make required disclosures can lead to your case being dismissed, leaving you unprotected from creditors.

Not Understanding the Impact on Co-signers

If you have co-signers on any of your debts, be aware that your bankruptcy doesn’t protect them. They may still be liable for the full amount of the co-signed debt.

Accumulating New Debt After Filing

Once you’ve filed for bankruptcy, avoid taking on new debt unless absolutely necessary and approved by the court. New debt can complicate your case and may not be dischargeable.

Failing to Attend the 341 Meeting of Creditors

The 341 meeting, also known as the creditors’ meeting, is a crucial part of the bankruptcy process. Failing to attend can result in your case being dismissed.

Not Understanding What Debts Can’t Be Discharged

Not all debts can be eliminated through bankruptcy. Common non-dischargeable debts include:

  • Most student loans
  • Recent tax debts
  • Child support and alimony
  • Debts incurred through fraud

Understanding which debts will remain after bankruptcy is crucial for making an informed decision about whether to file.


Avoid common mistakes when filing for bankruptcy


The Importance of Having a Bankruptcy Attorney

While it’s possible to file for bankruptcy without legal representation (known as filing “pro se”), having an experienced bankruptcy attorney can make a significant difference in the outcome of your case. Here’s why:

1. Expertise in Complex Laws

Bankruptcy laws are complex and constantly changing. An experienced attorney stays up-to-date with these changes and can guide you through the intricacies of the process.

2. Proper Filing and Documentation

A bankruptcy attorney ensures all required documents are filed correctly and on time. They can help you avoid mistakes that could lead to your case being dismissed or delayed.

3. Maximizing Exemptions

An attorney can help you understand and make the most of available exemptions, potentially allowing you to keep more of your assets.

4. Dealing with Creditors

Once you file for bankruptcy, an automatic stay goes into effect, preventing creditors from contacting you. However, if creditors violate this stay or dispute aspects of your case, an attorney can represent your interests effectively.

5. Navigating Challenges

If complications arise in your case, such as a creditor objecting to the discharge of a debt, an attorney can provide valuable advocacy and negotiate on your behalf.

6. Long-term Strategy

A good bankruptcy attorney doesn’t just help you file; they help you develop a strategy for financial recovery post-bankruptcy.

7. Peace of Mind

The bankruptcy process can be stressful. Having a knowledgeable professional guiding you can provide significant peace of mind during a difficult time.

While hiring an attorney does add to the cost of filing for bankruptcy, the potential benefits often outweigh this expense. Many attorneys offer free initial consultations, allowing you to discuss your situation and understand your options before committing.


Bankruptcy Attorney Chip Parker, Avoiding Mistakes


6 Tips for a Smoother Bankruptcy Process

1. Be Honest and Thorough

Provide complete and accurate information about your financial situation. Honesty is not just the best policy; it’s a legal requirement in bankruptcy proceedings.

2. Gather All Necessary Documents

Collect all financial documents, including tax returns, pay stubs, bank statements, and lists of assets and debts before starting the process.

3. Understand the Process

Educate yourself about bankruptcy. While your attorney will guide you, having a basic understanding can help you make informed decisions.

4. Follow All Court Orders and Deadlines

Missing deadlines or failing to comply with court orders can jeopardize your case.

5. Be Patient

Bankruptcy is not an overnight process. It can take several months for a Chapter 7 case and 3-5 years for a Chapter 13 plan. Stay committed to the process.

6. Plan for the Future

Use the fresh start provided by bankruptcy to develop better financial habits. Create a budget, start an emergency fund, and work on rebuilding your credit responsibly.

Filing for bankruptcy is a significant decision that requires careful consideration and planning. By avoiding common mistakes and seeking professional guidance, you can navigate the process more smoothly and set yourself up for a stronger financial future.

Remember, bankruptcy is not the end of your financial journey, but rather a tool to help you get back on track.

With the right approach and mindset, you can use this opportunity to build a more stable financial foundation for the future.


Learn More

At Blue Bee Bankruptcy, our lawyers are highly experienced in bankruptcy options. More importantly, we understand that each case we receive is unique and each client has different needs and goals. We will discuss these signs with you and decide the best route to take.

Likewise, we strive to help our clients rebuild their lives and take steps toward a better financial future through filing. 


Best Bankruptcy Attorneys in Salt Lake City


If you’re dealing with the potential of bankruptcy, give us a call. Our team will work to help you by reviewing all of the options our firm has available. We will ensure you’ll get the best possible outcome for your situation.

Get in touch today so we can start working on either halting bankruptcies or preventing them from taking place altogether!

Contact Us Today For Help! You can schedule your free consultation online or call us at (801) 285-0980.


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