If you want to avoid common mistakes made before filing for bankruptcy, take a look at this guide made by the Law Offices of Wenarsky and Goldstein, LLC.
When Should One Consider Filing Bankruptcy?
If you are having a hard time paying your bills, it is important to understand that there are many others going through a similar situation. Indeed, people consistently cite debt and other financial problems as a top source of stress.
If you have exhausted all other options for meeting your financial obligations and still can’t afford to pay off your debts, maybe you should consider filing bankruptcy. Bankruptcy is a federal court process that can offer debt relief for people who can’t afford to repay their bills or outstanding debts. Through bankruptcy, certain debts can be discharged or restructured and paid off during a period of several years.
Bankruptcy provides a potential path back to financial stability. That being said, the process can be difficult to navigate. There are pitfalls to be aware of and common pre-bankruptcy errors that you need to avoid. In this article, our New Jersey bankruptcy attorney highlights five of the most common mistakes that you need to avoid before filing for personal bankruptcy protection.
Common Types of Bankruptcy
The two most common types of personal bankruptcy include Chapter 7 and Chapter 13. A chapter in their names just refers to the specific section of the U.S. Bankruptcy Code.
The American Bankruptcy Institute (ABI) reports that 9,977 bankruptcy petitions were filed in 2021. Nearly 75 percent were Chapter 7 bankruptcy filings.
Chapter 7 is known as liquidation bankruptcy. A court can appoint a bankruptcy trustee who can sell some of your property. The proceeds can be used to partially repay the creditors. After that, the remaining unsecured debts, such as credit card debt or medical bills, are considered discharged. However, not everyone can file under Chapter 7 bankruptcy, and passing the means test is necessary before filing.
Although Chapter 7 offers erasing some of your debts, Chapter 13 lets you reorganize them. The court approves a monthly payment plan so you can repay your secured debt, such as a mortgage or a car loan. You will also pay off a portion of unsecured debt over the next three to five years. After that, the remaining debts will be forgiven.
Debtors who don’t have enough income typically choose Chapter 7, while debtors who have enough income to pay off at least some of their debts usually choose Chapter 13 bankruptcy.
Watch Out for these Common Bankruptcy Mistakes
When you decide to file for bankruptcy, following the procedure and avoiding common bankruptcy mistakes is essential. Not only can mistakes like these delay your bankruptcy case, but they may also result in the court dismissing your case entirely.
It is not uncommon to make a mistake in your bankruptcy case. That is especially the case if you are not aware of the ins and outs of the bankruptcy law. Here are some of the mistakes to avoid before you file bankruptcy.
1. Waiting Too Long to Start the Bankruptcy Process
Filing for bankruptcy protection at the right time can make a big difference. Waiting too long to start the bankruptcy process is the single most common pre-bankruptcy mistake that people make. Of course, that is not to say that you need to file for personal bankruptcy simply because you fell a few months behind on your credit card bill. Still, debt is not going to go away on its own. When you begin falling deeper and deeper into debt each month and you see no viable path out, it is time to set up a confidential appointment with a New Jersey bankruptcy attorney.
2. Choosing the Wrong Type of Bankruptcy Protection
When you start the bankruptcy process, it is important that you know which type of personal bankruptcy protection is right for your specific situation. Your two main options are as follows:
- Chapter 7 Bankruptcy: A liquidation bankruptcy through which people who satisfy the means-tested—and adjusted income below the state’s median—can discharge most of their unsecured debts.
- Chapter 13 Bankruptcy: A restructuring bankruptcy through which a petitioner can roll their debts into a three to five-year (affordable) monthly payment. There is no means test for Chapter 13 bankruptcy.
Filing under the wrong chapter could cause a major setback in your debt relief. A New Jersey personal bankruptcy lawyer can review your financial circumstances and help you weigh the advantages and disadvantages of each type of personal bankruptcy.
3. Making Below Fair Market Value Transfers (Giving Stuff Away)
You should not give your property and assets away to family members, friends, or other associates immediately before filing for bankruptcy. If you didn’t receive adequate compensation from a family member in return, the bankruptcy trustee can sue the recipient.
Any transfer that is considered to be “below fair market value” could be deemed a fraudulent conveyance. It is not a viable strategy to protect your property. The bankruptcy court could end up denying your petition and/or reversing the transfer.
Further, there is some good news: The majority of people who file for personal bankruptcy protection in New Jersey are eligible to retain most (or all) of their personal property through available exemptions. Do not assume that you are going to lose everything you own by filing for bankruptcy. That is simply not the case.
4. Racking Large Amounts of Additional Debt Immediately Prior to Filing
Once you have made the decision to file for bankruptcy protection, it is time to do whatever you can to stop incurring additional debt. Taking out a large amount of debt—such as maxing out a credit card or taking out a big personal loan—right before a bankruptcy filing could be deemed bankruptcy fraud. The bankruptcy court may not allow you to discharge debts that were incurred “in bad faith.” In some cases, it could even be deemed a criminal violation.
5. Refusing to File Bankruptcy
Refusing to file for bankruptcy can also be considered a mistake. Many individuals who are overwhelmed by debt and can’t pay bills don’t choose to file. Some of them are afraid that filing for bankruptcy can affect their credit score. There are many myths surrounding bankruptcy. Don’t let bias affect your decision.
6. Opting for a Do-It-Yourself (DIY) Bankruptcy
Do-it-yourself (DIY) projects can be extremely rewarding. That being said, a DIY bankruptcy is almost invariably a big mistake. Whether you are filing for Chapter 7 bankruptcy or Chapter 13 bankruptcy, the legal process is complex. Professional guidance and support can help you navigate the system in the most efficient, cost-effective manner—thereby putting you in the best position to shed overly burdensome debt and rebuild your finances. Protect yourself by working with an experienced New Jersey bankruptcy attorney.
Get Help from a Bankruptcy Lawyer in New Jersey
This is not a definite list of common bankruptcy mistakes. You can make other mistakes by accident or because you don’t know the ins and outs of the Bankruptcy law. Moreover, the stress of mounting bills can impact your health or relationship with family members. However, many errors can be avoided by consulting experienced bankruptcy attorneys.
At the Law Offices of Wenarsky & Goldstein LLC, our New Jersey personal bankruptcy attorney is an experienced advocate for clients. We are here to make sure that your bankruptcy filing is handled the right way. Give us a call today or send us a direct message to book a strictly confidential appointment. From our Denville office, we provide bankruptcy representation in North Jersey, including in Morris County, Essex County, Union County, and Hudson County.
