3 Ways to Turn a Bankruptcy Filing into an Unmitigated Disaster

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filing for bankruptcyOne of the biggest and most daunting challenges of filing for bankruptcy, is that most people who make this decision are typically under severe stress — which, as any psychiatrist or psychologist will tell you, is not the ideal time (to put it mildly!) to make major life decisions.

However, the fact remains that people who file for bankruptcy typically do not have time on their side. They are facing an unsustainable debt scenario, and their creditors are unwilling to negotiate or compromise. On the contrary, their creditors are likely dialing up their aggressive collection tactics, in the hopes that debtors will get so emotionally exhausted that they throw in the towel, and just pay up to make them go away.

Unfortunately — but to some extent understandably — some people who are already under immense this pressure make MAJOR mistakes that turn what should be a relatively straightforward legal process, into an unmitigated disaster. These egregious errors include:

1. Fudging the numbers.

While every situation is different, most debtors prefer to file for chapter 7 bankruptcy, because, all non-exempt debts are wiped clean. However, not all debtors qualify for chapter 7, since their disposal income is more than the maximum threshold in their respective state.

Considering this, one of the biggest mistakes — if not THE biggest mistake — that some debtors make, is fudging the numbers to get below the threshold; typically by hiding assets and income by transferring them to family members, friends, or even outside the country. Not only is such fraudulent activity extremely easy for the bankruptcy court to detect, but debtors risk having their petition dismissed. If that happens, they will be banned from filing for bankruptcy on those debts ever again. They may also face additional civil and/or criminal prosecution. As far as nightmares go, this is probably as bad as it gets.

2. Falling for a scam.

We started with an error that everyone should avoid making, to one that, unfortunately, ensnares many debtors who are trying to be honest: falling for a scam.

These scams have multiple variations, but the unifying common theme is that they seem — and in fact, are — “too good to be true.” For example, for an up-front fee (more on this in a moment), people can get a quick and painless solution to their debt problem. Except that never happens. Instead, the debt problem is much worse and harder to deal with.

Also, keep this in mind: some scammers have adjusted to the fact that people are wary of up-front fees by claiming that their service is “free” — which, of course, is a total lie (why would a total stranger help another total stranger get out of debt for free!?). However, it’s only after a debtor has provided the scammer with documents and other information that a demand for payment is made for “services that have already been rendered.”  Basically, this is extortion, but the debtor is already in the trap.  

3. Not speaking with a bankruptcy attorney.

While most firms and consultants in the credit counseling field are professional and honest, the fact is that a few of them have a vested self-interest in preventing debtors from filing for bankruptcy — because it means they can’t add a profitable new client.

This does not mean that all debtors should file for bankruptcy — since that is simply not true. Some should, and some should not. However, speaking with a bankruptcy attorney and getting counsel that is specific to their situation should be part of every debtor’s due diligence. Otherwise, they cannot make an informed and safe decision.

Learn More

To learn more about what you need to know about filing for bankruptcy, contact the Law Office of Charles H. Huber today.