Bankruptcy is a legal proceeding that involves individuals and businesses that are unable to honor their financial obligations to their creditors. Bankruptcy can release you from your debts, provide much-needed debt relief and give you a fresh start. However, it is important to understand that, like most things in life, bankruptcy can either have positive or negative repercussions depending on how you handle the process.
Bankruptcy comes with its share of do’s and don’ts. Meaning, there are certain mistakes you need to avoid while declaring bankruptcy. Making some of these mistakes, knowingly or unknowingly, can attract criminal charges with severe consequences.
Here are some of the mistakes you need to avoid when filing for bankruptcy.
Filing the wrong type of bankruptcy
There are two types of bankruptcies: Chapter 7 and Chapter 13 bankruptcies. Chapter 7 bankruptcy is ideal for individuals who want their debts to be completely wiped out. This type of bankruptcy takes a few months to complete. Chapter 13 bankruptcy, on the other hand, requires you to come up with a court-directed payment plan for your debts. It is important that know the right chapter to declare bankruptcy under to avoid setbacks in your debt relief. Filing Chapter 7 bankruptcy may not be a wise move if you wish to protect some of your assets.
It is important to understand that any form of dishonesty while bankruptcy can attract criminal charges against you. Dishonesty, or bankruptcy fraud, can take a number of forms, including failing to make full disclosures of your debts, lying about your assets or attempting to transfer assets before declaring bankruptcy. Dishonesty can land you in trouble with the court and worsen an already bad situation. For instance, if you are found guilty of bankruptcy fraud, you may face a 5-year jail time or a non-dischargeable fine amounting to $250,000.
Bankruptcy is a serious matter. Handled properly, it can give positive returns. On the other hand, if you commit these mistakes, bankruptcy can turn into your worst nightmare.