Filing bankruptcy is a strategic way to get your finances back on track when you have exhausted all other options, bringing you back from the brink of financial demise.
However, many consumers try to hide or restructure their assets during the process. This is considered illegal and can result in steep fines or even jail time.
Here are some of the most common bankruptcy mistakes to avoid.
Not Understanding the Bankruptcy Process
Not all debts qualify for forgiveness after your bankruptcy filing. This includes things like student loans, unpaid taxes and overdue child support or alimony.
Even if your bankruptcy is approved, you’ll still need to repay these debts. Be sure to do your research in advance to ensure that filing bankruptcy will have the intended effect.
If the majority of your debt isn’t covered, you may wish to avoid filing bankruptcy and seek other debt relief options.
Not Consulting a Solicitor
Bankruptcy law is quite complex, so it is not a good idea to try to handle the proceedings yourself. Instead, you should seek the assistance of a professional with experience in this area.
You’ll have much greater chances of success in getting your filing approved if you have a legal professional working on your behalf.
Not only that, but your solicitor can also help you negotiate the most favourable bankruptcy terms to minimise the impact on your credit rating.
Raiding Your Super Fund
It can be tempting to pull money out of your super account to pay off some of your debts before you start the bankruptcy process.
However, this is against bankruptcy law and could derail your filing efforts, rendering you unable to claim bankruptcy.
Furthermore, any assets in your super are exempt from bankruptcy, so it doesn’t make any sense to drain these funds when they are already protected.
Leave those funds right where they are, and trust the bankruptcy process to help you get out of debt legally.
Adding to Your Debts
When you already know that you are going to file bankruptcy, it can be difficult to resist the temptation to max out your credit cards or take on new debts, knowing that they will be forgiven if your bankruptcy is approved.
However, this strategy can backfire. If one or more of your creditors has evidence that you purposely ran up your balances in advance of your filing, they can challenge it, resulting in those debts not being included.
Then, you’ll still have to repay those creditors even after filing bankruptcy. Depending on the amount of additional charges, this could mean that you’ll still be in financial trouble, even after bankruptcy.
Transferring or Gifting Assets to Family or Friends
When planning for bankruptcy, it can also be tempting to give expensive items you own to family members or friends. This can include cars, jewellery, fine art, electronics, cash, real property and more.
Bankruptcy courts view this as a dishonest way to reduce your assets in advance of your filing so that you can protect them from being claimed to repay your debts.
After all, you could have reached an understanding with your gift recipient that they will give your property back to you after your bankruptcy proceedings have finished.
Lying About Your Assets
One of the most common bankruptcy mistakes is omitting assets from your calculations, whether intentional or not.
Missing assets can cause your filing to be thrown out before it even gets started, as your bankruptcy trustee will have access to all of your financial records.
Even if your filing makes it through the initial approval, your omission will be revealed eventually, rendering you ineligible for bankruptcy.
Be rigorous in preparing your bankruptcy application to ensure you haven’t missed anything.
Learn More About Avoiding Bankruptcy Mistakes
In addition to providing bankruptcy tips and helping you avoid bankruptcy mistakes, we may also be able to help you resolve your debts using alternative methods. This way, you could be able to avoid filing bankruptcy altogether.
Each situation is different, and we take a tailored approach to each customer.
Reach out to us today to speak with a specialist advisor.