3 Mistakes To Avoid Making Before Or During Bankruptcy

7 September 2022
 Categories: , Blog


If you are filing for bankruptcy, you'll want the process to go as smoothly as possible. However, people sometimes make mistakes before or during the process that cause a simple bankruptcy to become complex and expensive. Here are some tips to be aware of so you can avoid making mistakes.

Don't Get Ahead Of Mortgage And Car Payments

You'll need to keep making regular payments for assets that you are planning to keep, such as your car and your home. Unfortunately, many people also get the idea that the bankruptcy court doesn't like it when someone has a lot of money in their savings account. This can cause people to get ahead of their loans and reduce their cash on hand by making additional payments towards those assets that they want to keep.

The bankruptcy process is supposed to be transparent and fair to everyone involved. If you are unable to pay off your creditors you should receive bankruptcy approval if you qualify for it. However, making extra payments to creditors shows that you do have extra money on hand to pay other creditors. This isn't fair to those creditors holding debts that will be discharged, and it can cause complications. 

Don't Cash Out Your Retirement Accounts

If you are broke and creditors are calling you, it may be tempting to cash out a retirement account early in order to get the money that you need. This is not advised to do during the bankruptcy process. Even if you really need early access to your retirement money to recover after bankruptcy, you should only do this after the bankruptcy has been approved.

The reason for not touching your retirement savings is because many states protect this asset, and you won't be forced to cash it out to pay for debts. Once that money is cashed out and put into your regular bank account it is considered regular money. Creditors can then request that the money you have on hand is used to pay off their debts when it otherwise would have been in a protected account. 

Don't Transfer Property To Other People

It is not a good idea to transfer your property to other people before or during the bankruptcy process. This is viewed as you hiding an asset from the bankruptcy court, and it will not be good for how your bankruptcy case plays out in court. The court has ways to discover these property transfers, even if you do not talk about them yourself. You will get caught and cause complications to your personal bankruptcy as a result.

For more information, contact a bankruptcy attorney near you.