After coming to grips with your choice to file bankruptcy and filling out all of the paperwork, the last thing you might want to deal with is a premature case dismissal. Unfortunately, if you do things incorrectly, you might have to face the reality of paying back all of your creditors on your own. Here are two bankruptcy mistakes that could lead to your case being dismissed, and how you can avoid trouble.
1. Hiding Assets
To determine your ability to pay your creditors, you will be asked to disclose your assets to the court. However, because some forms of bankruptcy require that you sell your assets to satisfy any debts or liens held against you, some people are tempted to hide money, stocks, or future income. Unfortunately, if you lie about your assets, it could de-legitimize your entire case and a judge might deny your discharge. Here are a few ways that people hide assets, and what might happen if you make these choices:
- Undervaluing Items. That art collection might have only cost $2,000 when you bought it originally, but how much is it worth these days? Never undervalue items to minimize the risk of them being sold. If you don't know how much something is worth, talk with your attorney. You might be able to have pieces appraised and sold professionally, so that you owe less money to your creditors.
- Transferring Stock. If those stock options are a gleaming portion of your portfolio, you might be tempted to tuck them away in another account. Unfortunately, if you are caught with appreciating assets, you might be accused of committing bankruptcy fraud.
- Reporting Incorrect Income Totals. Some people even ask their employers to hold bonuses or adjust their paychecks to hide accurate income totals. Unfortunately, altering your paycheck could cause your case to be dismissed, and land your employer in hot water.
Believe it or not, having your bankruptcy case dismissed isn't the worst thing that could happen if you decide to lie about your assets. If you are caught committing bankruptcy fraud, you could be fined up to $500,000 or sentenced to up to five years in prison. To avoid mistakes that could land you with criminal penalties, try to be as thorough as possible when you research your assets. Mention any bank accounts, stock options, bonus programs, alimony totals, and any other financial gain that you stand to encounter. It might seem painful, but it could help you to discharge your debt without any collateral damage.
2: Failing to Complete Credit Counseling
The purpose of bankruptcy is to get you on the right track, which is why most courts require participants to undergo credit counseling. Although your financial classes might seem like an insignificant detail, some judges will actually throw out bankruptcy cases if you fail to complete mandatory credit counseling. Here are a few things you will learn in these classes, and why you need to attend each session:
- Money Management. If you ended up in a bad financial situation because of a few bad habits, credit counseling might be able to help you avoid future problems. While in credit counseling, you will learn key money management techniques like budgeting, dealing with interest, and taking out loans properly.
- Alternatives. Credit counselors will also talk with you about alternatives to bankruptcy, so that you can make the right choice for your situation.
- Life After Bankruptcy: After you declare bankruptcy, your financial picture might look a little different. You might have to manage garnished wages, payment plans, or an altered credit score. Fortunately, credit counseling can also teach you how to handle your life after bankruptcy, so that you are prepared.
By making the right decisions during your bankruptcy, you can relax, come to grips with your new situation, and start healing from your financial troubles. For additional reading, contact a professional.
