Our blog sure does cover a lot of ground about bankruptcy. Which is a good thing. We want to be sure that you understand all the processes, terms, principles and philosophies that factor into such an important decision. We even throw in some recent news about bankruptcy to help provide additional "real world" perspective on how bankruptcy laws are interpreted and applied.
All that being said, it's always good to get back to the basics. So let's talk about some common mistakes people make when considering or starting the bankruptcy process:
- Borrowing money from family to pay creditors: This will only make things worse. Even if your venture capitalist brother is more than willing to lend a dollar, don't do it. Every dollar that comes from a family member will gain more emotional interest in the coming years than the debt relief was worth. There is no sense in spreading financial stress and discomfort when its not necessary. The problem is compounded if you repay the relative prior to filing bankruptcy. A bankruptcy trustee can sue friends or relatives who have received more than $600 in repayment during the year prior to your bankruptcy. Regardless of your family's outlook on your financial situation, see your own way through it.
- Hiding assets: This sounds like a simple enough rule to follow, doesn't it? You may be surprised at how many people try to transfer ownership on prized items that they know will look pretty attractive to the trustee overseeing your case. This is about not making things worse. Oh, and its about looking good in court. The last thing you want is a bankruptcy judge under the impression you tried to pull one over on him or her. Always be upfront and honest about what you own.
- "Selectively" listing your creditors: Be very thorough when providing contact information and names of creditors to whom you owe money. Take the time to get it right from the beginning. Your bankruptcy attorney can certainly help but some folks have decided that maybe one or two groups called a few too many times or may have been a bit harsh in their collection efforts that just maybe, you can sneak one past them. You can't. Again, don't hide anything; get it all out as soon as possible.
- Cashing in retirement accounts: This is never a good idea, whether you are filing bankruptcy or not. No expense is worth putting off the rest of your life. Remember, your bankruptcy dealings will pass well before it's time for most people to retire. More likely than not, any retirement funds are fully protected because of acts passed in 1974 and 2005, as discussed in a previous post. Plus, the tax penalties will prevent you from being able to use all of the money.
- Use your home equity line: Once more for the people in the back row: You can't borrow your way out of debt. Do not put your home in trouble when its not necessary. If you have managed to keep that equity line in check while building other kinds of debt, let it be. That money is better used for home-related expenses and tax benefits when you are on solid financial ground.
To recap, keep browsing the blog for all things bankruptcy and keep the above points in mind so if you do decide to file bankruptcy, you can get off on the right foot.