Bankruptcy is a life-changing experience for people struggling to manage their finances and pay outstanding bills. Two options are available for people looking to discharge their debts via bankruptcy. While Chapter 7 involves individuals voluntarily handing over their assets to the bankruptcy court for sale and paying back to the creditors, Chapter 13 applies to individuals having the income and the ability to manage debt under a different plan structure.
Chapter 7 Bankruptcy
People struggling to pay their debts can get immediate relief through the Chapter 7 bankruptcy law. The relief is available within 4 to 5 months of the filing of the bankruptcy petition. The law provides for immediate relief by ending foreclosures, evictions, lawsuits, credit card debt, IRS levies, wage garnishment, and all types of consumer debt including medical bills, tax debts, and bank overdrafts.
Non-business claims under Chapter 7 bankruptcy in the US in 2020 stood at 367,034 while the number of business claims was 11,919. While 95% of the chapter 7 filings considered under a 2020 study by the American Bankruptcy Institute were successfully discharged, the remaining were dismissed on various grounds. Here we talk about certain mistakes that should be avoided to prevent the dismissal of your chapter 7 bankruptcy filing.
Mistakes to Avoid Before Bankruptcy Filing
Chapter 7 bankruptcy includes a means test wherein you have to disclose all your assets and income (including any future payments that you expect) for the determination of your capacity to pay off the creditors. Any attempt to hide any assets or income can lead to the instant dismissal of your case besides a ban on future filings. The bankruptcy court examines the past transactions made by you within a specified period before the filing of the petition. So before filing your petition, consult with a bankruptcy lawyer to avoid certain transactions that may qualify as bankruptcy fraud.
Some common transactions to be avoided include:
Transferring assets to your mother or wife or any other family member.
Changing the name on bank accounts or eliminating your name from joint accounts.
Taking your name off of a business venture
Depositing or transferring funds into banks accounts of others
Deeding real property that is in your name to another person
Preferential payments to specific creditors
Luxury purchases on credit before bankruptcy can result in creditor objection to the discharge of your debt.
Deposition of unusual amounts into your bank account. This could hurt your ability to pass the means test and qualify for chapter 7 bankruptcy filing.
Suing anyone for any legal claims that you have. These legal claims are the property of the bankruptcy estate and should be disclosed to your lawyer.
Mistakes to Avoid After Filing Chapter 7 Bankruptcy
Merely filing for bankruptcy is not enough. You need to complete certain formalities like:
Complete credit counseling and debtor education requirements set out by the bankruptcy law. Requisite completion certificates need to be submitted to avoid the dismissal of your case.
Filling the correct forms related to your petition, schedule, and statement of financial affairs.
Providing your bankruptcy trustee with certain supporting documents like your pay stubs and tax returns.
Choosing the right bankruptcy exemptions.
Attend the 341 meeting of creditors where the bankruptcy trustee and the creditors can ask you questions under oath about your financial affairs. Failure to attend can result in the dismissal of your case.
All these mistakes can be avoided by taking the help of a bankruptcy attorney who will not only advise you about the whole process but also support you through it.