Things to Consider When Thinking About Bankruptcy Filing

 Making payments you can’t afford to make

This is quite easy. Making payments you can’t afford to make is money down the drain. Coming up with a few dollars to keep bill collectors happy puts you under a lot of pressure. This temporary fix quickly overwhelms you because there are not enough dollars to keep all your bill collectors pleased.

Trying to hide your assets

Some bankruptcy judges and trustees do not have a sense of humor. Do not make the assumption you can get away with hiding prize collector cars or museum-quality oil paintings. The bankruptcy trustee may find out and you won’t like what happens next.

Concealing information from your lawyer 

You might think that you have a good reason for withholding information from your attorney. You may think that your lawyer won’t understand your situation, or that by keeping quiet about an asset or an account, you’ll be able to keep it. When you don’t disclose everything, you tie your lawyer’s hands and create serious risks. You could lose assets, have your bankruptcy case dismissed, or even face criminal charges. Plus, your lawyer may withdraw from your case if you are not completely honest with him. Your lawyer can defend your rights and property only when he has all the information.

Withdrawing money from your retirement accounts to pay debts

  Many people utilize their retirement savings to pay off credit cards, medical bills, and other unsecured debt. This is a bad idea. If you qualify for bankruptcy, these debts can be reduced or eliminated completely. What’s more, most pensions and retirement funds in qualified ERISA accounts are protected in bankruptcy. This means you may be able to erase your debts and keep your retirement account. Don’t empty your retirement account in a futile attempt to catch up on bills.

Reaffirming a mountain of debt

Sadly, all too often people reaffirm a loan or debt they could otherwise erase in bankruptcy. This may be done because the person feels a moral obligation to pay the bill. In other situations, the person wants to keep a possession, such as a car, on which they owe more than the asset’s value. The aim of bankruptcy is to erase your debts and get a fresh start. It serves no practical purpose when you agree to pay debts that the law allows you to discharge in bankruptcy.

Borrowing money from relative

Borrowing money from relatives puts a major tension on your relationship. And when you go through bankruptcy, you need the support of family members. What’s more, you can’t borrow your way out of debt. Unless you have a rich relative who will give you the money, it’s much smarter to talk with a lawyer about modifying debts or filing bankruptcy.

Taking out a second mortgage against your home, usually called a home equity loan

 You can’t sponge your way out of debt. Many people hope to avoid Illinois bankruptcy by getting a home equity loan to pay off medical bills, credit card debt, and other obligations. And, not surprisingly, banks and other lenders make home equity loans sound attractive because they want to loan money. Later, people with home equity loans end up losing their home when they can no longer make the payments. If you’re late paying medical bills or credit cards, the creditor can harass you, take a judgment, and potentially garnish your wages – and that’s about all. When you’re late paying a home equity loan, the bank can foreclose and throw you and your family out of the house. Don’t trade unsecured debts for a home equity loan. The odds are good that if you file for bankruptcy, you will get rid of your debts and still be able to keep your home.

Neglecting to accurately list all of your creditors

 Don’t guess about the creditors you list on your bankruptcy petition. Make sure you list all of your creditors. If you make an error, you may be able to correct your petition later. Although there is case law that states a bankruptcy discharge applies to all unscheduled debts. But if you try to hide something or mislead the court, the bankruptcy court may decide not to erase the debt.

Disregarding pending lawsuits

 Some people assume that if they’re planning to file bankruptcy, they don’t have to respond to or appear in court for pending lawsuits. Not true. You need to respond to lawsuits and protect your rights and property until the bankruptcy court issues a stay, which bars lawsuits.

 Filing bankruptcy when you expect a tax refund

 The amount of your exemption for tax refunds is restricted. Talk with your bankruptcy lawyer to discuss how to handle your tax refund.

Filing bankruptcy when someone owes you money

 If you file bankruptcy when someone owes you money, the trustee will simply gather that money and pay it to your creditors.

Having a huge amount of money in your bank account on the day you file for bankruptcy 

If you have more than a minimal amount of money in your bank accounts on the day you file for bankruptcy, the money may not be exempt from creditors.

 Failing to attend your bankruptcy hearing

 In most cases, you must attend one bankruptcy hearing. If you do not attend, the court could dismiss your bankruptcy, which means you lose that valuable legal protection and you go back to the same position you were in before the filing of bankruptcy.

Repaying over $600 to family, friends or business partners before filing for bankruptcy

These payments are “preferences” and a trustee may seize the money and give it to all of your creditors. Do not pay a relative or friend significant amounts of money (more than about $600) within the year prior to filing for bankruptcy. Under state law trustees can look back even further

Thinking that bankruptcy is your last resort

 You should look at bankruptcy as a financial planning decision instead of a personal failing. You have the right to a fresh financial start whenever you want it. You do not have to wait until you’ve spent your home’s equity or your pension before exerting your legal right to a fresh start. Think of it this way: If you cannot pay off all your debts (other than mortgages and cars) within three years, while living a modest lifestyle, then you should at least put bankruptcy.