You've made the decision to file for bankruptcy and of course, you want to do it right. Most clients I work with want to avoid Bankruptcy mistakes and make the filing process as smooth as possible. Recently I've had to help clients whose petitions needed fixing. So I thought it would be a good idea to outline the biggest Bankruptcy mistakes. I've seen every one of these mistakes cost my clients untold amounts of money and grief.
These mistakes could have been avoided. I surveyed Google recently, looked for the top 20 sites for the "10 Biggest Mistakes in Bankruptcy." as I want to do a compilation of common biggest bankruptcy mistakes and more importantly how to avoid them. Much of the online advice applies only to residents of their state-but it doesn't say so. Some of what I've written here applies only to California and I'll say so. But most is good for anywhere in the United States.
I want to cover these mistakes in some detail rather than giving a brief summary, so this week here's 1 & 2. The other biggest Bankruptcy mistakes will follow over the coming weeks.
1. Failing to disclose everything. This includes every asset. Every creditor. Every recent transaction. This is critical, as you can lose your discharge if you don't take this seriously. Why? A petition in the Bankruptcy Court must pass one supreme test: "Was it filed in good faith?" The minute you think, "I can't disclose that," you put your case at risk.
If your connection to the undisclosed asset or income left any trace anywhere, the bankruptcy administrator will find it. Then you must explain the transaction, as well as why you didn't list it. The mere fact you didn't list it makes it suspicious and you'll often have to provide additional documentation. Failing to list creditors often means their debt is still valid after your bankruptcy discharge, since they didn't have an opportunity to challenge your case, or to benefit if there is a distribution to your creditors.
2. Failing to keep good records. Even in school, the excuse "the dog ate my homework" won't save your grade. Judges view a lack of records as an indicator of fraud. So if you don't have records, it's a sign of bad faith and you could lose your discharge.
So what are good records?
(1) At least 2 years tax returns for Chapter 7 cases.
(2) Income records such as pay stubs for the past 6 months. If you're self-employed, profit & loss statements for 6 months.
(3) Several months of receipts for what you spend. The bankruptcy administrators have the right to conduct audits of your income and expenses, and take away your discharge if you can't prove them.
(4) Six months of bank statements for every account you have.
(5) A credit report (often your attorney will get this for you).
(6) If you want to stop the creditor calls, keep all letters from collection agencies and lawyers.
(7) All lawsuit papers you receive in the past year.
(8) Escrow statements for each property you've sold in the past 4 years.
(9) Donation records for the past 4 years.
I offer a free 30 minute telephone bankruptcy consultation where we can discuss your specific situation and determine whether a chapter 7 bankruptcy could be the answer to your current financial difficulties.