5 Common Bankruptcy Mistakes and How to Avoid Them
Are you considering filing for bankruptcy? It’s a big decision to make in life, but one that many people have to when things feel out of control.
It’s a very wise choice for people who are finding themselves in a downward spiral, unable to dig themselves out. Still, you don’t want to take any drastic action hastily and make mistakes along the way.
So, what are the common bankruptcy mistakes to watch out for? Let’s get that discussion tackled, so you won’t have to fall into the same mistakes as others did.
Read on and find out how to avoid these mistakes.
Table of Contents
1. Failing to File at the Correct Chapter
There are two main chapters of bankruptcy – Chapter 7 and Chapter 13. Chapter 7 is for individuals who can’t afford to repay their debts. Chapter 13 is for individuals who have a regular income and want to repay their debts over time.
If you’re not sure which chapter to file under, you should speak with a chapter 13 bankruptcy attorney. Filing under the wrong chapter can make it more difficult to repay your debts and may even lead to the dismissal of your case.
2. Delaying the Filing
Many people think that they can wait until their financial situation becomes dire before filing. The sooner you file, the sooner you can begin the process of rebuilding your finances. The longer you wait to file, the more difficult it will be to qualify for bankruptcy relief.
Delaying the filing may give creditors more time to take legal action against you. If you are considering bankruptcy, it is important to consult with an experienced bankruptcy attorney to discuss your options and determine if filing is the right choice for you.
3. Incurring Debt After Bankruptcy
While it may be tempting to use credit to finance a new purchase, it is important to remember that this can put you at risk of falling back into debt. To avoid this, be sure to create a budget and stick to it. Only use credit when necessary, and make sure you can afford the payments.
If you can keep your spending under control, you will be on your way to a successful financial future.
4. Credit Card Run-up
A credit card run-up is when people max out their credit cards and then only make the minimum payments, or sometimes don’t even make payments at all. The problem with this is that the interest charges on credit cards are very high, so the debt can quickly become unmanageable.
To avoid this mistake, it’s important to be aware of your spending and make sure you’re only using your credit cards for things you can afford.
5. Retirement Account Liquidation
Retirement accounts are protected from creditors in bankruptcy, so if you liquidate them, you could end up losing a lot of money that could have been used to pay off your debt. In addition, retirement account assets are often exempt from bankruptcy, so you may not be able to get them back even if you file for bankruptcy. If you are considering liquidating your retirement accounts to pay off creditors, talk to a bankruptcy attorney first.
Avoid Any Of the Common Bankruptcy Mistakes
Bankruptcy can be a difficult and stressful process, but by following these simple tips you can avoid some of the most common bankruptcy mistakes people make. Remember to consult with an experienced bankruptcy attorney to ensure you are taking the best course of action for your unique situation.
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