Filing for bankruptcy gives you a chance to obtain relief from overwhelming debt and make a fresh financial start. It’s an opportunity to reorganize your finances and work towards a more stable future.
However, when you’re applying for Chapter 7 bankruptcy, know that there are some mistakes that could lead to complications or even dismissal of your case. These include the following.
Filing under the wrong chapter
One of the costliest mistakes when filing for Chapter 7 bankruptcy is failing to accurately complete the means test or failing to qualify for Chapter 7 bankruptcy when another chapter might be more appropriate for your situation. If you file under the wrong chapter, you may miss out on potential benefits or protections that could have been available to you such as the ability to keep certain assets.
Withdrawing your retirement accounts
If you withdraw your retirement accounts before filing for Chapter 7 bankruptcy, it could be a costly mistake. Retirement accounts such as 401(k)s, IRAs and pension plans are typically protected from creditors during bankruptcy proceedings. However, if you withdraw funds from these accounts to pay off debts before filing you may lose this protection and the withdrawn funds could be considered assets available for creditors to seize.
Transferring assets
When you transfer assets shortly before filing for Chapter 7 bankruptcy, it can raise red flags and lead to complications in your case. Such transfers may be viewed as fraudulent conveyances or preferential transfers especially if they involve transferring assets to family members or friends for less than fair market value. The bankruptcy trustee has the authority to reverse these transfers and recover the assets for distribution to creditors.
To avoid complications during the Chapter 7 bankruptcy process, it’s essential to seek legal guidance to help you understand your rights and responsibilities and to better ensure that you make informed decisions that comply with legal requirements.