When filing Chapter 7 bankruptcy, certain common mistakes can needlessly cost you money. Furthermore, some mistakes are illegal and they can prevent you from being able to eliminate your debts through bankruptcy. Here are seven of the most common mistakes made when filing chapter 7 Bankruptcy:
- Leaving creditors off of your bankruptcy petition.
When you are preparing your bankruptcy petition, you and your attorney should list all of the secured debt you plan to keep, all unsecured debts you plan to eliminate, as well as disputed debts, old debts and anybody in the world who could claim that you owe them money. Any debt left off of the petition may not be discharged.
- Making preferential payments.
It’s quite normal for you to prefer to pay off one debt before making payments on another debt. For example, if you get a tax refund or come into some money and you owe to many different creditors, you might use this money to make payments on certain debts while completely ignoring others. You may pay back a family member to whom you owe money, and ignore your credit card debt. If make these kind of payments within 1 year prior to filing bankruptcy, it may be classified as a preference payment and the bankruptcy trustee can take this money back from your family member to distribute it evenly amongst your creditors. In most cases, it will not sit well with that friend or family member from whom the money was reclaimed. So, in addition you to your financial struggles, you will then be faced with repairing a damaged personal relationship.
- Transferring assets.
If you are about to file bankruptcy and you have an asset you are worried about losing, you cannot simply protect this asset by transferring it to a family member or someone else. If you do have a non-exempt asset you are worried about losing, you should let your bankruptcy attorney know. You may be able to transfer this asset to someone else for fair market value, but you must be careful of how the transfer is made so that it will not cause a problem for your bankruptcy case.
- Applying for mortgage modifications
If you are in the process of applying to modify your mortgage payments and you are about to file bankruptcy, your bank may deny your application for a modification because you are about to file bankruptcy. So, if modifying your mortgage is important to you, wait until you have your modification finally approved or denied before filing bankruptcy.
- Having a significant cash value in a whole life insurance policy.
Most life insurance policies are term life through your employer, but if you have a whole life policy with cash value and the designated beneficiary is someone other than your spouse or child, this policy will not be exempt from bankruptcy. If the amount is small, you may be able to protect it by using your wallet card exemption. If the amount is significant, be sure to alert your bankruptcy attorney.
- Forfeiting tax returns.
If you file your bankruptcy in November or December, and you are expecting a large tax refund (more than a couple thousand dollars for a joint return, or more than 1000 dollars for an individual), you may have to turn over part of your refund to the bankruptcy trustee once it is received. If you are filing late in the year or early in the year before you receive the tax return, you should discuss with your bankruptcy attorney whether or not it would be better to file your bankruptcy after your return has been received and spent according to his or her instructions.
- Waiting too long to file.
The worst Chapter 7 Bankruptcy mistake of all is waiting too long to file. If you are being sued and the creditor gets a judgment against you, they may start garnishing your wages and/or bank account and you will needlessly suffer further financial damage that could have easily been avoided by filing bankruptcy. Once you file bankruptcy, all collection action will be halted. So, file early and avoid spiraling further into financial ruin.
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Call (405) 563-7888 for a free consultation with a Oklahoma City bankruptcy lawyer or (888) Debt-Line for an Oklahoma bankruptcy attorney. Our attorneys have years of experience in Oklahoma bankruptcy law and in applying Oklahoma bankruptcy exemptions, so that Debt Line Law Office clients can keep their exempt property and still discharge unsecured debts through a Chapter 7 bankruptcy in Oklahoma. With a ten (10) minute, free phone consultation with one of Debt Line’s Oklahoma City bankruptcy lawyers, you can know what you qualify for and the costs and procedures involved.