Filing for Bankruptcy is a Smart Move, But Avoid These Foolish Mistakes
The word “bankruptcy” may conjure feelings of dread, fear and shame in many New Yorkers – but it shouldn’t. In fact, those who file for bankruptcy do better financially than those who continue to struggle with their current debts, according to a study by the Federal Reserve Bank of New York.
Bankruptcy is a move that provides better stability for long-term planning. Those who file for bankruptcy are better prepared to rebuild their futures and provide for themselves in retirement, according to the Federal Reserve Bank of New York. Because a properly conducted bankruptcy case resolves many financial issues at once, very few Americans ever file for bankruptcy more than once in their lives, according to a recent Huffington Post article.
The article points out that too many people face uncertain retirements because they fail to grapple with their debts through the bankruptcy process earlier in their lives. “Putting off dealing with your debt can cost you the very money you will need to retire and be able to afford to eat and live even just a moderate life,” the article states.
The author also refutes the notion that bankruptcy is ethically problematic. “Bankruptcy is not a moral decision. It is a legal choice made when the debt situation is hopeless,” he writes.
When Should You File for Bankruptcy?
Most people don’t see bankruptcy coming. They start with a debt that seems manageable, given their financial circumstances – a mortgage, a credit card balance, a car loan. Then an unexpected change happens – their income level drops significantly due to illness or job loss, the interest rate on their debt skyrockets, or they simply can’t keep up with minimum monthly payments. The debt keeps growing, and the family’s ability to stay on top of it slips further and further behind.
If this sounds familiar, it might be time to consider bankruptcy. An experienced New York bankruptcy attorney can be your ally during the process. You can also help yourself by avoiding risky missteps while you consider your options.
What NOT to Do If You’re Considering Bankruptcy
Perhaps you’ll file for bankruptcy, and perhaps you’ll find another way to manage your debt. In either case, here’s what you should NOT do before you make the decision:
1. Don’t pay creditors more than the minimum they are owed.
Pay your utility bills and your other debts on time, if you can. But avoid making large or unusual payments to any one creditor, and do not pay off any one debt in full – even if you have the chance.
In a bankruptcy case, the court looks for evidence of a transaction known as a “preferential transfer.” This is a situation in which other creditors may have been shortchanged because you sent a large payment to one creditor instead of making regular small payments to all of them. If the court determines a preferential transfer took place, it may attempt to take back the large payment from the preferred creditor. This can have devastating effects – especially if you chose to pay back a relative or family member instead of paying other creditors.
2. Don’t take out new debts.
Do not borrow any more money unless it is absolutely necessary to survive. If you take out a new loan or open a new credit card account and then file for bankruptcy, the creditor might argue that you had no intention of paying back the new debt. If the court agrees with this argument, you will not be able to discharge the new debt in bankruptcy – you’ll still be legally responsible for paying the whole thing.
3. Don’t make unusual transactions.
During a bankruptcy case, the court is alert for evidence that might indicate fraud or an attempt to conceal assets. If you give a large gift of money or assets, transfer your ownership share in a business, transfer the title of a car or home, or buy new or unnecessary items (especially large ones), the court may read this behavior as an attempt to conceal assets or commit fraud.
Accusations of fraud can complicate your bankruptcy case, and the penalties can be severe. Avoid this risk by paying your routine bills as best you can and refrain from any large or unusual transactions.
4. Don’t fail to let your creditors know you are considering bankruptcy.
Creditors have certain legal options to get you to pay your debts – but they can’t use some of these options if you are filing for bankruptcy. If creditors are threatening to sue you over your debt or have already filed the paperwork, let them know you are planning to file for bankruptcy as soon as you can. A bankruptcy filing may prevent creditors from garnishing your wages or seizing assets. It is easier to prevent garnishment or seizure than it is to get assets back once they have been taken, so don’t keep the news of your bankruptcy plans a secret from your creditors.
5. Don’t drain your retirement before you file.
In almost all cases, you will be allowed to retain your retirement accounts even if you file for bankruptcy, so draining these accounts in a last-ditch effort to pay your debts only hurts your future. Talk to an experienced lawyer before you dip into your retirement funds.
6. Don’t fail to get help from a qualified New York bankruptcy attorney
If you need a fresh start in order to rebuild your financial future, there is hope. Talk to a bankruptcy attorney today to find out how filing for bankruptcy protection could help you regain control of your financial life – and how you can avoid making these and other common mistakes in the bankruptcy process.
New York bankruptcy attorney Michael H. Schwartz has assisted clients with more than 4,000 filings. Under his guidance, clients haven’t had a single discharge denied or lost a single home in foreclosure.
As one of the top-rated bankruptcy lawyers in New York, Mr. Schwartz can help you preserve your future financial well-being. To learn more through a free case review, call (800) 666-9743 or send us a message.
Michael H. Schwartz is the largest filer of bankruptcy cases for people living in Westchester and Rockland counties in New York. A graduate of New York Law School, Michael has been licensed to practice in New York State courts since 1983. He is also licensed to practice in the U.S. Bankruptcy and District Courts for the Southern, Eastern and Northern Districts of New York and the District of New Jersey as well as the Second Circuit U.S. Court of Appeals. He is a graduate of Max Gardner’s Bankruptcy and Veterans’ Boot Camps. Several media outlets have reported on his cases or sought his insights, including The New York Times.
