For those facing an overwhelming amount of debt, bankruptcy can provide a much-needed fresh start. Before you can secure a clean slate, though, you’ll have to navigate complex legal proceedings.
What many debtors don’t realize is the proceedings essentially start long before they actually file their petition. In the months leading up to the bankruptcy, they must be careful to avoid critical missteps that could ultimately hurt their financial security further or jeopardize their eligibility for a discharge entirely.
Read on for some of the most common mistakes petitioners make prior to declaring bankruptcy so you know what not to do:
1. Taking out a HELOC to Pay Down Unsecured Debt
If you take out a home equity line of credit (HELOC) to chip away at credit card debt or medical bills, you’re essentially replacing unsecured debt with secured debt. Unsecured debts are those that aren’t secured by any assets, so there’s less at risk should you default. If you fall behind on any secured debts, however, you risk losing the assets they’re linked to, like your home or vehicle.
2. Transferring Assets to Others
Giving property to friends or loved ones prior to declaring bankruptcy could be interpreted as fraud. The court may think you’re trying to shelter said assets during the proceedings. Even if you were planning on transferring property before you found yourself in financial trouble, you should wait until the bankruptcy has been resolved to do so.
3. Using Credit Cards Liberally
Once you decide to proceed with bankruptcy, you should stop using your credit cards unless absolutely necessary. In Mississippi, credit purchases for luxury goods exceeding $1,150 made within 60 days of filing are not dischargeable. The same applies to cash advances of at least $1,150.
4. Postponing the Proceedings
There are dozens of reasons why debtors put off filing for bankruptcy. Unless you’re 100 percent certain your financial situation is going to improve immensely in the near future, however, it’s advisable to file your petition as soon as possible.
In other words, if you’re not anticipating an inheritance or liquidating an asset like a vacation home or business, you probably won’t regain your financial footing without a little help. And the sooner you declare bankruptcy in such a scenario, the sooner you can discharge debt, reorganize your obligations, and start rebuilding your credit.
5. Prioritizing Some Creditors over Others
In the months leading up to the proceedings, petitioners should not favor some creditors over others. If you borrowed money from loved ones, for example, you might be inclined to pay them back because you don’t feel right about discharging their loans.
Unfortunately, doing so could complicate the proceedings if the court believes it constitutes “preferential” treatment. They can order the creditor who was repaid to return the funds so the trustee can divide them evenly among all lenders.
Speak with a Jackson Bankruptcy Lawyer
To see if you’re a good candidate for chapter 7 or chapter 13, turn to Brown Bass & Jeter, PLLC. Our knowledgeable team never judges clients for the situations in which they find themselves. Instead, we help them devise and then implement the best strategy possible give the circumstances. To discuss your financial situation with a bankruptcy attorney in Jackson, call 601-487-8448 or complete our Online Contact Form.