If you are filing for bankruptcy, you are likely hoping to do so without spending unnecessary money. The State of California allows people to file for bankruptcy without an attorney (“pro se”), but this comes with significant risks.
Bankruptcy is a complex process and filing without an expert’s help can leave you vulnerable.
Here are some common mistakes people make when filing for bankruptcy in Southern California.
Mistake #1: Choosing the Wrong Kind of Bankruptcy
The processes for these types of bankruptcy are quite different.
Under Chapter 7, your nonexempt assets will be liquidated, and those funds will be used to pay your creditors.
With Chapters 13 and 11, you will be put on a payment plan with the expectation of repaying your debts in 3 to 5 years.
If you file for bankruptcy, but under the wrong chapter, your petition could be rejected.
An experienced bankruptcy specialist can review the full scope of your finances and determine which bankruptcy chapter is right for your situation.
Mistake #2: Adding to Your Credit Card Debt Before You File
The 75-day period before filing for bankruptcy is called the “presumption of abuse” period. Any major purchases made during this time (especially if made with a credit card or a cash advance from a credit line) are considered to have been made when you could not reasonably pay the balance back.
Creditors can, and will, file lawsuits in bankruptcy court to prevent these debts from being discharged.
If you make any large or unusual purchases before filing for bankruptcy, you could be accused of fraud.
Mistake #3: Transferring Property to Another Person
In Chapter 7 bankruptcy, a person’s nonexempt assets are subject to liquidation by the courts. This means some holdings or properties may be sold, and the proceeds used to repay a portion of your creditors.
However, most people do not end-up surrendering any of their belongings. Approximately 95% of all Chapter 7 filers have only nonexempt assets, and so none of their property is subject to liquidation.
In some instances, people transfer their assets to another person within the applicable “look back” period. If the transfer is made so that you didn’t receive adequate consideration in return, the trustee in a chapter 7 will sue the recipient. Many people are unaware of this statistic, and attempt to transfer assets to another person – usually a family member. Doing so could be considered fraudulent behavior, and could land you in hot water.
Mistake #4: Repaying Debts to Friends and Family
This one may seem a little counterintuitive. If you are in debt and have received loans from friends or family, you likely will want to reimburse them as soon as possible. However, if you are filing for bankruptcy, you should hold off on making such repayments.
Bankruptcy proceedings require that all your creditors be treated equally. By repaying friends or family before your other lenders, you are showing preferential treatment.
Mistake #5: Filing Too Close to A Major Life Event
Did you know there could be consequences to filing for bankruptcy too close to your wedding? It’s true – merging your finances with another person’s could complicate your filing.
Single people have only their income scrutinized by the bankruptcy courts. Once married, your spouse’s income and assets will be considered, as well. Your filing could be rejected because your financial information has drastically changed. Or, you may only be eligible for Chapter 13, when you would have qualified for Chapter 7 alone.
Also, you should avoid filing for bankruptcy if you are expecting to receive a large sum of money – like an inheritance, settlement, or insurance payout.
If you receive this large sum too close to your filing, you may have to hand it all over to your bankruptcy trustee.
Mistake #6: Creating An Unrealistic Chapter 13 Payment Plan
When you file for Chapter 13 bankruptcy, you submit a proposal for a debt repayment plan. The terms of this plan will last from 3 to 5 years, and once completed, all your unsecured debts will be forgiven.
However, first, the courts have to approve your proposed payment plan. Your proposal will have to meet certain requirements. For example, certain debts must be given priority, and lenders must receive at least as much as they would if you were eligible under Chapter 7.
If your proposed payment plan is rejected, you will have to go back to the drawing board.
Get Expert Advice from a Certified Bankruptcy Specialist
Mistakes like these could delay your case. You can avoid this hassle by working with a Certified Bankruptcy Specialist.
The Law Offices of Larry D. Simons has helped thousands of people in Mission Hills and Riverside through their bankruptcy proceedings. Click here to schedule your no-cost consultation right now.
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