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5 Common Bankruptcy Mistakes
Many Americans facing large debts are desperate for a solution to their financial woes. Yet it seems that a lot of people don’t want to consider filing for bankruptcy as a viable option. Bankruptcy can be viewed as a long, arduous process, when it can be quick and relatively painless, if it’s done right.
The best way to make a bankruptcy filing go as smoothly as possible, is to consult with an experienced Ohio consumer law attorney, who can facilitate the process, offer practical advice, and will work tirelessly to get you back on track, financially. Call the skilled Ohio bankruptcy lawyers of Luftman, Heck & Associates right away at (888) 726-3181 to schedule a free, no-risk consultation.
Familiarize yourself with these five common bankruptcy mistakes, which may help you avoid any pitfalls during the bankruptcy process.
- You File for the Wrong Chapter.
There are two common types of consumer bankruptcy: Chapter 7 and Chapter 13. The chapter you choose depends on your situation and what you hope to achieve. Do you want to keep your car but ditch your credit card debt? Do you have substantial medical bills that are eating up all your money? If you have debts you want to keep paying but you cannot afford your payment plans, Chapter 13 may be right for you. This type of filing is also a good choice for people who are facing foreclosure and want more time to pay back arrears they owe their mortgage company.
Chapter 7 is an ideal plan for people who want to eliminate all of their consumer debt. While there are certain debts that cannot be discharged in any bankruptcy, a Chapter 7 will clear much of your debt while allowing you to keep some of your assets.
Since each plan has its own appeals and drawbacks, it’s important to consider each carefully and determine how they will affect your situation. Talking to a bankruptcy attorney can be helpful at this point, since they can provide an in-depth explanation of each plan and any exemptions for which you may qualify.
- Using Your IRA or 401(k) To Pay Your Debt.
You are allowed to withdraw retirement funds in the form of a loan to yourself, which means you will have to pay yourself back. If you’re 59 ½ years old or older, you can take money out of your 401(k) or IRA without incurring a tax penalty or having to pay yourself back. But that money is called a “retirement fund” for a reason – it’s the income that is going to keep you afloat when you stop working. Spending it to pay down debts may seem like a good idea, especially if you’re still working and can pay yourself back, but it could be a costly mistake. If you were unable to pay back your loan before you leave your job, you could incur a tax penalty on the amount you haven’t paid back. Even worse, it means you have less money set aside for retirement.
Regardless of your age or employment status, your retirement savings can be exempted in bankruptcy, so you shouldn’t tap into them to pay off debts. It’s a good idea to speak to a bankruptcy attorney first to find out if your debts can be discharged before you worry about how to pay them back.
- Continuing to Incur Debt Before You File for Bankruptcy
Once you’ve decided to file, it can be tempting to make some major purchases, especially if you can keep the property and ditch the expensive payments that come with them. Do not look at bankruptcy as a way to rack up credit card debt without being on the hook for the bills. The court looks at all of your bills, carefully scrutinizing debt incurred in the immediate six months before you filed to search out this kind of reckless spending. If it looks like you ran up your bills purchasing a bunch of nonessential items right before you filed, the court may refuse to discharge these debts.
- Making the Same Financial Mistakes.
Bankruptcy should not be treated as a quick fix that dissolves old debt to make room for new bills. Instead, you should look at it as a fresh start, a chance to makeover your spending habits so you never find yourself in the same stressful situation again. Before you file, you are required to attend an online credit counseling session, and before your discharge is awarded you will need to complete a financial management course. These tools will help you successfully create a new plan to manage your finances and live with less debt.
- Doing Everything Alone.
Filing for bankruptcy is not easy. There are copious forms to fill out and numerous documents you need to provide. You have to ensure that the plan you file is the plan you qualify for, or you risk having the court throw out your bankruptcy. You have to be able to account for your debts and answer questions that come up in your Creditor’s Meeting. Add the stress of filing to the tension you already feel from being in debt, and you may feel like you’ve made a big mistake.
There’s no need to take on your bankruptcy case by yourself when you can entrust it to a capable bankruptcy attorney. An attorney will explain the plans, answer all your questions, explain the forms you need to fill out, and list out what documentation is needed on your end. Your attorney goes to court for you, so you only need to attend your Creditor’s Meeting. All you have to do is wait for your discharge award.
Call an Ohio Bankruptcy Attorney
The easiest way to avoid many common bankruptcy mistakes is to contact an experienced attorney for help. The Ohio bankruptcy attorneys at Luftman, Heck & Associates are available to walk you through the process and help you decide your best plan of action.