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Filing For Bankruptcy - Pitfalls to Avoid

September 17th, 2009 by bankruptcy

bankruptcy filingFiling for bankruptcy can be erroneous at times, and the mistake can often prove to be very costly. Few people realize bankruptcy can lead to long-term repercussions. However, at times debtors don’t have any other options left but to file for bankruptcy. In such cases, it’s important to know about certain pitfalls, which can be avoided.

1. Transferring the asset value: People generally try to protect their assets by transferring them to others. However, this strategy does not work when one files for bankruptcy. Recently transferred properties and assets have to be disclosed to the bankruptcy trustee appointed by the court. And the court could prevent the transfer from taking place. So it becomes counterproductive in initiating the transfers, just before filing for bankruptcy. As per the law, each state has specific bankruptcy guidelines, which are specially designed to protect all, or certain portions of the assets, while filing a bankruptcy.

2. Transferring of credit card balances: Debtors often try to transfer a substantial portion of their debt amount to one credit card. This can shift the debt burden from the older creditor to a new one, and provide the debtor some time to arrange for some alternative ways and means to redeem. However, this should be avoided, since it does not solve the problem, but rather avoid it. Moreover, the new creditor may strongly protest, and argue that the new debt ought to be presumed fraudulent. This can be especially true when the transfer takes place just 60 days prior to filing for bankruptcy for an amount in access of over $1500.

filing for bankruptcy now

3. Repayment of loans to family members: As per the bankruptcy rules and guidelines, the debtor is required to treat all the creditors equally, and not choose which creditors to be repaid prior to others. The trustee appointed by the bankruptcy court holds the right to pursue a relative receiving certain or all portions of any funds made available to him or her. One is required to list out all debts owed to family members, and assuming there are no objections related to the discharge of funds from main creditors, the debt can be officially redeemed to the particular relative in any manner deemed fit by the debtor.

4. Avoiding certain debts while declaring the bankruptcy petition: The debtor is legally required to list out and clearly indicate all debts outstanding while filing the bankruptcy petition. If the debtor desires to retain the house, and the automobile while filing for Chapter 7 bankruptcy, it’s required to sign a reaffirmation agreement with the bankruptcy court which excludes certain assets required for discharging debts.

5. Ignoring litigations: Majority of individuals fear litigations and lawsuits, and find it difficult to respond when they receive summons in their mail. In majority of the cases, when the debtor has filed for bankruptcy, and receives the summons, the bankruptcy attorney can fax the case information to the creditor’s legal representative, and get the litigation dismissed. However, if one is in the process of filing for bankruptcy, and the litigation has not been officially filed, it can be beneficial to attend the court hearing, and seek a continuance and file for bankruptcy relief.

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This entry was posted on Thursday, September 17th, 2009 at 4:36 am and is filed under Business, Financial Planning, bankruptcy. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

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