Repairing Your Financial Situation

Posted on: 22 March 2019

Financial stress can take a lot out of you. Calls from creditors and worries about your financial health and future can create a lot of anxiety, and you may feel desperate to relieve the pressure. Filing for bankruptcy can take some of the weight off of your shoulders. While a bankruptcy filing isn't great for your credit, it can be preferable to drowning in debt and can give you the chance to make a clean start. However, that doesn't mean that you should rush into a bankruptcy filing. Jumping in too quickly can be a mistake that will hurt you in the long run. Take a look at some bankruptcy mistakes to avoid before you file the paperwork.

Mistake #1: Filing When You Have Money Coming

Are you expecting an inheritance or are you due to receive a settlement from a lawsuit? Do you expect to get a substantial tax return this year? If you're expecting to receive any significant amount of money in the not-too-distant future, you may want to hold off on your bankruptcy filing.

For one thing, if you receive a windfall, you may be able to use it to get yourself out of debt without needing to declare bankruptcy. Waiting it out can save you the time and trouble of a bankruptcy case. And even if you don't receive enough to completely clear your debt, paying down what you can prior to filing bankruptcy can make the eventual bankruptcy less complicated.

It's important to know that there are rules in place to prevent you from filing bankruptcy in order to protect an inheritance. If you receive an inheritance during the first 180 days after the filing, you'll need to report it to the court, amend your paperwork, and, if the inheritance doesn't fall into an exempted category, it can be taken to be distributed among your creditors. Even after 180 days, in a Chapter 13 bankruptcy, an inheritance may be taken and applied to your debts. Therefore, if you know that you're receiving an inheritance soon, it just makes sense to wait and see if you can straighten out your financial situation without the help of the bankruptcy court.

Mistake #2: Filing at the First Sign of Trouble

The intense pressure to avoid debt can lead some people to jump into a bankruptcy filing too quickly. However, if you're in an ongoing situation that's putting pressure on your finances and creating debt, it may be better to wait to file for bankruptcy until the situation has resolved.

This is often the situation for people who incur debt during a health crisis. If you can't keep up with the mounting medical bills, bankruptcy may be the best solution. However, if your health status is such that you're going to continue to rack up more debt for some time, it may be better to wait and file the bankruptcy when your health is more stable. The reason for this is that if you need another bankruptcy later, it can be quite some time before you're allowed to file again. For example, if you receive a discharge under a Chapter 7 bankruptcy, you'll need to wait 8 years before you can receive another Chapter 7 discharge.

Mistake #3: Making Large Purchases Before You File

Of course, you can't avoid paying for necessities like shelter, food, and utilities. But if you're considering a bankruptcy, it's a good idea to hold off on big purchases that could be considered luxuries. You should also avoid taking out cash advances.

The reason for this is simple: if a creditor realizes that you took out a loan or cash advance shortly before filing for bankruptcy, they can argue that you never intended to pay the money back in the first place. The bankruptcy court may consider that a form of fraud and refuse to discharge the debt in the bankruptcy, leaving you on the hook for the full amount, without any bankruptcy protection.

Your best course of action when you're considering bankruptcy is to go over your situation with a bankruptcy attorney, such as Charles J Schneider PC. Even if you're not sure or not ready to file yet, a bankruptcy attorney can help you figure out whether bankruptcy is right for you and when would be the best time to file. A bankruptcy attorney's advice can help you avoid costly mistakes.