Deciding to file for bankruptcy is deeply personal. But for many Americans, it’s the light at the end of the tunnel and the opportunity for a financial fresh start.
However, if you’re unsure of what you’re doing or the bankruptcy process, you could make errors, leading to complications and unnecessary stress. Here are three common pitfalls and how to avoid them.
1. Not disclosing all your assets
Filing for bankruptcy requires transparency. It’s not easy to recall all of your assets, or maybe you have items you want to keep out of bankruptcy proceedings. Still, failing to disclose all of your assets could be viewed as an attempt to hide assets. Your case could be dismissed, and you could face accusations of fraud.
To avoid making this mistake, you must set aside some uninterrupted time and thoroughly inventory everything you own and owe. This may include real estate holdings, vehicles, valuable jewelry, retirement accounts and inheritances.
2. Choosing the wrong type of bankruptcy
There are two main types of personal bankruptcy: Chapter 7 and Chapter 13. Deciding which is best for you can be confusing, but choosing the wrong one can have long-term consequences.
Chapter 7 is referred to as a “liquidation bankruptcy” because it involves selling off certain assets to pay debts. Chapter 7 also wipes out unsecured debts, such as medical bills and credit card debt. It requires you to take a means test that compares your income against Ohio’s median income. The whole process may take a few months.
Chapter 13, known as “reorganization bankruptcy,” allows you to set up a repayment plan to pay off your debt over 3 to 5 years. It is often a better option if you have significant assets you want to protect.
It’s important to understand how each type of bankruptcy works and how they will impact your assets and credit score.
3. Taking on more debt right before filing
Avoiding taking on new debt just before filing is crucial. Some people may think it’s no big deal to max out their credit cards since bankruptcy will erase those debts. Bankruptcy court may see it as an attempt at fraud and trying to exploit the system. They may refuse to discharge those debts or dismiss the whole case.
Once you know that you will file for bankruptcy, you need to stop using your credit cards or taking out new loans.
The best way to avoid making mistakes is to work with someone who understands Ohio’s bankruptcy laws. They can guide you through the process and ensure all your documentation is submitted correctly.