Bankruptcy can be a great option for a consumer in financial distress because it allows them to start over with a clean slate. However, bankruptcy is a complicated legal process, and making a single error could invalidate the entire process and force you to start over or even lose the ability to file for bankruptcy. If you've filed for bankruptcy or are considering filing for bankruptcy, be sure to avoid these common missteps.
Inaccurate Income Reporting
If you're filing for Chapter 13 bankruptcy, you'll be receiving a payment plan based on your income. However, calculating your income during bankruptcy is often tricky as you may have lost your job, be suffering from reduced commissions or overtime, or had losses or irregular income from a business. If you understate your income, it could be seen as an attempt to fraudulently obtain a lower payment plan and severe penalties could result.
The key to accurate income reporting is honesty and disclosure. Gather every pay stub, 1099, and bank statement that you can for at least the last two years. Include all of this documentation in your bankruptcy filing so that if you do make a mistake when totaling your income, the court will see that you weren't trying to hide anything.
If you're working with a bankruptcy attorney, bring all of this documentation with you to your meetings. Ask them about each individual item so that they have a full understanding of your situation and can advise you accordingly.
Don't Go on a Spending Spree
Sometimes people who are about to file for bankruptcy decide to take a lavish vacation, go out for fancy meals, or spend money on other things they normally wouldn't. The thinking is that if they put these expenses on a credit card, they won't ever have to pay the bills.
This could actually be seen as a type of criminal fraud if there was no intent to repay the lender. At best, the debts might be kept even after the bankruptcy is discharged.
Don't Give Away Everything
People filing for Chapter 7 bankruptcy might try to give belongings to friends and family so that they aren't sold in the bankruptcy auction. This could also be seen as fraud, and the court may deny the bankruptcy.
To learn more about how to make your bankruptcy go more smoothly and to get professional help to make sure you avoid the common bankruptcy errors, talk to a local bankruptcy lawyer today.