Filing for bankruptcy is a significant decision that can provide much-needed relief to individuals and businesses facing financial distress. However, the process is complex and fraught with potential pitfalls that can jeopardize your case if not handled correctly. At Pitts Hay & Hugenschmidt, our experienced Asheville bankruptcy lawyers have helped countless clients navigate these challenges and achieve a fresh financial start. In this article, we’ll discuss the most common mistakes people make when filing for bankruptcy and offer professional insights to help you avoid them.
1. Waiting Too Long to File for Bankruptcy
One of the most frequent mistakes people make is delaying the decision to file for bankruptcy. Many individuals hope their financial situation will improve or feel ashamed about seeking bankruptcy protection. Unfortunately, waiting too long can worsen your financial troubles.
Why Timing Matters
- Accumulated Debt: Interest, penalties, and fees continue to grow the longer you wait, making it harder to recover.
- Asset Risks: Creditors may take legal actions like wage garnishments or foreclosure, putting your property and income at risk.
- Stress: Prolonged financial struggles can take a toll on your mental and emotional health.
Our Advice:
Consult with a bankruptcy attorney as soon as you realize your debt is unmanageable. An early assessment can help you explore options and take timely action.
2. Choosing the Wrong Type of Bankruptcy
Filing for the wrong type of bankruptcy is a costly and time-consuming error. The most common types for individuals are Chapter 7 and Chapter 13, each with specific qualifications and outcomes.
Chapter 7 Bankruptcy
- Best For: Those with little to no disposable income and significant unsecured debts like credit card bills and medical expenses.
- Outcome: Most unsecured debts are discharged, but some assets may be liquidated.
Chapter 13 Bankruptcy
- Best For: Individuals with a steady income who want to keep their property while repaying debts through a structured plan.
- Outcome: A 3- to 5-year repayment plan allows you to catch up on overdue payments and retain valuable assets.
Common Missteps:
- Filing for Chapter 7 when you don’t qualify due to income limits.
- Choosing Chapter 13 without fully understanding the long-term financial commitment.
Our Advice:
Work with a knowledgeable bankruptcy attorney to evaluate your financial situation and choose the right path.
3. Hiding Assets or Income
Some people mistakenly believe that hiding assets or not reporting all sources of income will help them protect their property during bankruptcy. This is a grave error that can lead to serious legal consequences.
Why It’s a Problem:
- Legal Violations: Bankruptcy requires full transparency; hiding assets is considered fraud.
- Case Dismissal: Courts may dismiss your case entirely if dishonesty is uncovered.
- Criminal Charges: Intentional deception can result in fines or imprisonment.
Our Advice:
Be completely honest about your financial situation. An experienced attorney can help protect your assets legally through exemptions and strategic planning.
4. Failing to Gather Proper Documentation
Bankruptcy involves extensive paperwork and documentation. Missing or incomplete records can lead to delays or even the dismissal of your case.
What You Need:
- Recent tax returns.
- Pay stubs or income verification.
- Bank statements.
- Property deeds and vehicle titles.
- A list of debts, including credit card bills, medical bills, and loans.
Common Issues:
- Forgetting to include all creditors, which means those debts won’t be discharged.
- Providing outdated or inaccurate information, leading to complications in court.
Our Advice:
Work closely with your lawyer to compile and organize all necessary documentation. Double-check for accuracy to ensure a smooth filing process.
5. Running Up Debt Before Filing
Some individuals mistakenly think they can accumulate debt just before filing for bankruptcy, assuming it will be discharged. This is a risky strategy that often backfires.
The Risks:
- Fraudulent Charges: Courts scrutinize recent debt, especially luxury purchases or cash advances, and may classify them as non-dischargeable.
- Creditor Objections: Creditors can challenge the discharge of certain debts, prolonging the process.
Our Advice:
Avoid making any major financial moves or taking on new debt in the months leading up to your bankruptcy filing. Consult your attorney to understand how recent transactions may affect your case.
6. Ignoring Non-Dischargeable Debts
Bankruptcy does not eliminate all types of debt. Many people overlook this and assume all their financial obligations will disappear.
Examples of Non-Dischargeable Debts:
- Child support and alimony.
- Certain tax debts.
- Student loans (except in cases of undue hardship).
- Court-ordered fines or restitution.
Our Advice:
Discuss your debts with an attorney to determine which ones can be discharged. For non-dischargeable obligations, explore other strategies to manage repayment.
7. Neglecting to Protect Co-Signers
If someone co-signed a loan with you, they may still be responsible for the debt even if you declare bankruptcy. Failing to account for this can strain relationships and lead to unintended consequences.
How It Works:
- Chapter 7: Creditors can pursue co-signers for repayment.
- Chapter 13: Co-signers may receive some protection as you repay the debt under your plan.
Our Advice:
Inform your co-signers about your decision to file for bankruptcy and work with your lawyer to minimize their exposure.
8. Choosing DIY Bankruptcy
Bankruptcy laws are intricate, and even minor errors can lead to serious consequences. Some individuals try to save money by filing on their own, but this often results in costly mistakes.
The Dangers:
- Misinterpreting eligibility requirements.
- Filing incomplete or incorrect paperwork.
- Missing important deadlines.
- Failing to take advantage of available exemptions.
Our Advice:
Hiring a qualified bankruptcy attorney is an investment in your financial future. They can guide you through the process, avoid pitfalls, and maximize the benefits of bankruptcy.
9. Continuing to Pay Certain Debts Unnecessarily
Once you decide to file for bankruptcy, you may not need to continue paying certain debts. Many individuals make the mistake of prioritizing payments on unsecured debts that will ultimately be discharged.
Examples:
- Credit card bills.
- Medical bills.
- Personal loans.
Our Advice:
Redirect your resources to essential expenses like mortgage or car payments if you intend to keep those assets. Your attorney can help you understand which debts require immediate attention.
10. Overlooking the Importance of Credit Counseling
Before filing for bankruptcy, you’re required to complete a credit counseling course approved by the U.S. Trustee Program. Failing to meet this requirement can delay your case or result in dismissal.
Why It Matters:
- It provides insights into whether bankruptcy is your best option.
- Completion is mandatory for your case to proceed.
Our Advice:
Choose an accredited counseling agency and complete the course promptly. Your attorney can recommend reputable providers.
11. Not Preparing for Life After Bankruptcy
Bankruptcy is a fresh start, but it’s not a cure-all. Many people fail to plan for how they’ll rebuild their financial lives post-bankruptcy.
Common Post-Bankruptcy Challenges:
- Limited access to credit.
- Higher interest rates.
- Difficulty securing loans or renting property.
Our Advice:
Develop a post-bankruptcy plan with the help of your attorney and financial advisor. Focus on budgeting, building savings, and improving your credit score over time.
Why Choose Pitts Hay & Hugenschmidt?
At Pitts Hay & Hugenschmidt, we understand that filing for bankruptcy is a deeply personal and often emotional decision. Our experienced Asheville bankruptcy lawyers are dedicated to providing compassionate, knowledgeable guidance tailored to your unique situation. Here’s what sets us apart:
- Experience: Decades of combined experience handling bankruptcy cases.
- Personalized Service: Customized solutions to address your financial challenges.
- Comprehensive Support: Assistance with every step of the process, from initial consultation to post-bankruptcy planning.
Conclusion
Filing for bankruptcy can be a transformative step toward regaining financial stability, but it requires careful planning and expert guidance. By avoiding the common mistakes outlined above and working with experienced attorneys like those at Pitts Hay & Hugenschmidt, you can navigate the process with confidence and achieve the fresh start you deserve.
If you’re considering bankruptcy, don’t wait to seek professional help. Contact us today to schedule a consultation with one of our skilled Asheville bankruptcy lawyers. Together, we’ll help you take control of your financial future.
