The Perils of Filing for BankruptcyBy Caitlin in Bankruptcy
If a bankruptcy is completed properly and is in fact successful then the benefits are great and they can be achieved through no other method. But, like any other financial risk, bankruptcy is not without peril and once you make the decision you cannot take it back.
It’s important to recognize all the risks associated with filing for bankruptcy and to decide if it’s the right choice for your situation and proceed with caution so that you can do it right the first time. Here are some of the risks that can be avoided.
Filing for bankruptcy changes the laws that oversee the debtors and creditors that are dealing with your financial situation. It’s of the utmost importance that you understand when the right time to file your bankruptcy is. Sometimes filing a bankruptcy is urgent and therefore must be done as soon as possible, working with bankruptcy counsel is your best bet to avoid this risk as they will know when the right time to file is.
Technically transferring an asset to another person so that it’s not involved in the bankruptcy process is legal but you should be aware that there are still risks. Certain transfers may render your bankruptcy filing a crime or it could ruin your chances of not having to repay your debts. Transfers need to be carefully thought out as they could cause even worse problems for you.
While bankruptcy discharge cannot be taxed it can still be some effect on your taxes. The effects vary depending on the situation, but it’s still important to make sure that you know what kind of effects you will be dealing with.
4. No take backs
Filing for bankruptcy may be irreversible. The law is changed when a bankruptcy is filed so it’s important that you understand the laws that are changed and what their effects will be on your situation. Debtors, creditors and collection agencies will have to deal with you differently once you fill your bankruptcy so keep that in mind when making your decision.
5. Loss of assets
Once you file for bankruptcy all of your assets are transferred to a trustee. After which your exempt assets will be returned to you. You should prepare yourself for the loss of some, if not most of your assets before you decide to file. There are proper and legal ways to make sure that certain assets are not lost but there are also illegal and improper ways of doing this. Make sure you know the difference as you do not want to break the law, this could result is criminal charges.
Hiding assets and not fully disclosing all financial information are federal crimes.
7. Choosing a method
It can be hard to decide which bankruptcy process is best for you and your financial situation. Make an informed decision as once you started the proceedings changing you mind can have a negative effect on the outcome of your bankruptcy.
8. Hidden Creditors
One of the first things that you and your bankruptcy counsel should do is a search for hidden creditors. Many people are unaware of certain creditors. If you don’t properly inform a creditor then the amount that you owe them will not be discharged, this means that you will still have to pay off your debt.
9. Lawsuits against Creditors
If you replay a family member or other creditor a large amount of money within the year before you want to file your bankruptcy there may be a problem. If the debt you owed this person was past due for any reason you will probably have to wait another year before you can file. The reason for this is because the family member or creditor might end up having to give the amount you paid them to your bankruptcy trustee.
10. Loss of Credit
Most people assume that the loss of credit you experience when filing for bankruptcy is debilitating and almost impossible to recover from. The truth of the matter is what when you can’t pay off your debts there is no escaping bad credit. What is worse is when someone who should file for bankruptcy does not. If you really need to file for bankruptcy, and the process is done properly by getting a discharge of debt, then regaining good credit is possible. Once you have filed for bankruptcy, you will get a second chance and will be able to rebuild and improve you credit history.
Once you have decided that bankruptcy might be a good option for you it’s important that you then asses all the risks associated with it. There are many risks but once you have done your research and fully understand them, a bankruptcy might be exactly what you need to start fresh. Bankruptcy is not for everyone, it’s a difficult decision to make that must not be made lightly.