The Top Mistakes to Avoid When Filing for Bankruptcy in Athens, GA

Bankruptcy is a big decision; no one should file without considering the implications. However, when your financial situation is untenable, the sooner you file, the sooner your debt problems are behind you.

Everyone who files for bankruptcy wishes they had done so sooner because they could have resolved their financial problems much faster. When petitioners file without seeking legal advice, they make many mistakes beyond procrastination. Top mistakes to avoid when filing for bankruptcy in Athens, GA, include the following:

• Waiting too long to file
• Failing to seek legal advice
• Failing to disclose all assets
• Hiding assets
• Taking on debt before filing
• Paying debts with retirement funds before filing
• Failing to complete the required courses
• Filing under the wrong chapter

Waiting Too Long to File

The number one regret expressed by bankruptcy filers is that they waited too long to file. Bankruptcy is a bit like visiting the dentist. The prospect may seem daunting, but you feel much better afterward. Unmanageable debt is like a bad tooth. The pain may be verging on unbearable. Stopping it requires an unpleasant extraction, but then it is over.

 

Also, declaring bankruptcy requires you to rebuild your credit history once the case concludes. This process takes time. Filers often find that it takes two to three years after bankruptcy to qualify for mainstream stream credit cards and car loans and two to four years to be eligible for a mortgage. The sooner you file, the sooner you can establish a favorable credit profile.

 

Failing to Seek Legal Advice

Bankruptcy laws have many detailed complexities. For example, only some qualify for Chapter 7. You must meet income and asset requirements, which vary by state. Also, the law allows you to exempt some property but surrender it when it is above the legal limit. A bankruptcy lawyer analyzes your financial situation, determines whether you qualify, and advises on protecting assets.

Failing to Disclose All Assets

Your bankruptcy petition must disclose all of your assets. Failure to do so may result in your case being dismissed. Worse, if you intentionally omitted assets, you can face sanctions for bankruptcy fraud. Courts must determine whether you have non-exempt assets to which your creditors have entitlement.

 

Accordingly, you must disclose the following assets:

 

• Real property. You must disclose all real estate you own, such as a primary residence, rental properties, vacation homes, and land.

 

• Personal property. The petition includes forms for disclosing personal belongings. For example, you must list the value of all furniture, appliances, clothing, jewelry, electronics, collectibles, artwork, and tools.

 

• Vehicles. Bankruptcy petitioners must declare all automobiles, motorcycles, RVs, boats, and trailers.

 

• Financial accounts. All financial accounts must be listed in the bankruptcy documentation, including checking and savings accounts, investment accounts, cryptocurrency holdings, and retirement accounts. 

 

• Business interests. The bankruptcy forms also require the disclosure of any assets tied to a business, such as stock ownership, inventory, and equipment, provided the interests are not part of a separate corporation.

 

• Cash and cash equivalents. It is illegal to file bankruptcy and keep undeclared cash under your mattress. However, most states allow you to keep a small amount of declared cash on hand. The same rule applies to cash equivalents, such as traveler’s checks, money orders, or prepaid debit cards.

 

• Life insurance policies. Many life insurance policies have cash- and surrender value. This must be disclosed to prevent petitioners from using such policies to hide cash.

 

• Annuities and pensions. You must declare all annuities and pensions.

 

• Legal claims and settlements. Many people fail to realize they must disclose any pending or potential legal claims, lawsuits, or settlements. Once you file bankruptcy, you lose legal control of what happens with your claims. Instead, the bankruptcy trustee now controls the claim and is entitled to direct and settle the lawsuit for the benefit of your creditors.

 

• Tax refunds. Tax refunds are also an asset that can be used to repay creditors, Therefore, they must be declared. 

 

• Intellectual Property. Copyrights, patents, trademarks, and other intellectual property are assets that must be declared.

 

• Debts owed to you. Bankruptcy petitioners may not just owe money, they may also be owed money. As debts owed to the filer are assets, they must be disclosed.

 

• Miscellaneous Assets. This final category is a catch-all for odd assets, such as lottery winnings, inheritances, or valuable items in storage.

Hiding Assets

Some individuals feel temptation to hide assets before filing bankruptcy. For example, a struggling debtor may purchase gold bars with cash in the months and years leading up to the bankruptcy and then not disclose them. This is an illegal act. A court is likely to conclude that the petitioner committed bankruptcy fraud.

 

Another tricky area consists of transferring assets. Some cases of asset transfer can be considered fraudulent. For example, placing a vacation home in the name of a relative to keep it despite filing for bankruptcy. On the other hand, an innocent individual may have conducted legal asset transfers long in the past.

 

A bankruptcy lawyer knows what assets and asset transfers must be declared and guides clients so they never run afoul of the law.

Taking on Debt Before Filing

When you consult with a bankruptcy attorney, they will quiz you on your debts and when they were acquired. They must do this because bankruptcy law prohibits petitioners from running up debt with the intention of defaulting and then filing bankruptcy. Courts look for red flags, such as large, unnecessary purchases on a credit card shortly before filing.

 

Your attorney will advise you if they see any issues regarding the timing of debt acquisition and filing for bankruptcy. 

 

If you took out debt very close to filing bankruptcy, the court may refuse to discharge those debts. Protecting their clients from making this mistake is a fundamental function of bankruptcy lawyers.

Paying Debts With Retirement Funds Before Filing Bankruptcy

One of the chief advantages of bankruptcy is that you can keep assets in a retirement account, such as an IRA or 401(k). Because of this, it is never advisable to withdraw money from your retirement savings to pay debt that will be later discharged in bankruptcy. Keep your retirement savings in those protected accounts if you are teetering on a financial edge and feel you may be headed to bankruptcy.

Failing to Complete the Required Courses 

The U.S. Bankruptcy Code mandates petitioners to take financial literacy courses to qualify for discharge. These courses are available online and take just a few hours to complete. However, the concepts discussed in these classes are valuable in helping debtors avoid insolvency in the future.

 

For example, the courses teach about budgeting, saving, and financial planning. By creating a realistic budget, bankruptcy filers can prevent themselves from taking on too much debt in the future. A common reason households suffer financial distress is overestimating their ability to service debt. They may neglect to budget enough to cover expenses and new debt and fall behind on payments.

 

By budgeting properly, households can create a savings plan to amass extra cash for the unexpected, such as surprise medical bills. With a budget in place and savings in the bank, they can then plan their finances for the long term, allowing them to take control of their financial future.

Choosing the Wrong Chapter

Before filing bankruptcy, you must decide whether to file a Chapter 7 or a Chapter 13. Chapter 7 is a liquidation bankruptcy. Essentially, you must sell property above a specified value to satisfy creditors. Therefore, Chapter 7 makes sense for people with few or no exempt assets.

 

On the other hand, if you have substantial home equity, savings, and investments outside of protected retirement accounts, you may have too much to lose by filing a Chapter 7. However, if pressed by creditors and facing property seizures, you can protect your assets by filing a 

Chapter 13. 

 

Chapter 13 allows you to restructure debt payments into a court-approved plan. Because the plan makes repaying your debts affordable, you can satisfy creditors without losing property.

 

Who Should Consider a Chapter 7?

Chapter 7 wipes the slate clean of dischargeable debts. Dischargeable debts include credit cards, auto loans, upside-down mortgages, installment loans, medical bills, leases, and some taxes, fines, and penalties. With the unmanageable debt discharged, the petitioner can then afford essentials.

 

But not all debts are dischargeable in Chapter 7. If your debts are primarily the non-dischargeable, filing a Chapter 7 may not improve your financial situation, and the damaging impacts on your credit may worsen it.

 

Non-dischargeable debts include the following:

• Child support
• Alimony
• Back taxes (less than three years from the filing date)
• Some fines
• Some personal injury judgments
• Punitive damages from a civil court judgment
• Debts incurred by fraud

 

However, if you are struggling to manage a combination of dischargeable and non-dischargeable debts, Chapter 7 allows you to jettison the dischargeable debts, so you can afford to pay off the non-dischargeable debts.

 

Also, Chapter 7 bankruptcy has limitations on income and assets. You are disqualified if your income is too high or your asset base is too large. However, you can still seek relief under Chapter 13.

Who Should Consider Chapter 13?

More affluent debtors may only qualify for Chapter 13. Also, some households that qualify for Chapter 7 are better off filing a Chapter 13.

 

For instance, if you have substantial home equity and face foreclosure, filing a Chapter 13 offers a path to saving your home. Once you file, the court orders all collection activity against you to stop, including foreclosure proceedings. You can then propose a plan to the court that restructures your debts to an affordable level.

 

Chapter 13 plans range from 36- to 60 months, depending on your level of indebtedness. During this time, you maintain home ownership and catch up on the back payments. At the end of the plan, you can sell the home and take the equity or keep it by maintaining the mortgage.

 

The last thing you want is to make a significant mistake when filing for bankruptcy. Errors and omissions may lead to your case being dismissed or assets being disqualified from discharge.

 

Contacting a bankruptcy lawyer prevents you from making costly mistakes. In addition, it’s the job of bankruptcy attorneys to ensure that their clients receive the full benefit of the bankruptcy code.

 

Morgan & Morgan’s bankruptcy law team is here to help. We can advise on whether you qualify for bankruptcy, the implications specific to your situation, when to file, and under which chapter.

 

Contact Morgan & Morgan to discuss your bankruptcy options if you suffer from unmanageable debt.

 

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