If you have large amounts of debt, you may not know what to do next. For many people, filing consumer bankruptcy can help provide a fresh financial start.
Depending on the type of bankruptcy you file, you can fully eliminate all or a portion of your debts. But there are certain mistakes you should avoid making during the bankruptcy process to protect your interests and financial stability moving forward.
Not providing complete financial information
When filing for bankruptcy, honesty is important. Failing to disclose all your financial information, including assets and debts, can lead to consequences, such as the dismissal of your case. Ensure you provide accurate and comprehensive details to avoid complications.
Running up credit card debt before filing
To maximize the benefits of bankruptcy, some people rack up additional credit card debt before filing. The court may look at this as fraudulent behavior, and it can lead to your debts not getting discharged and even legal penalties. Avoid incurring new debts once you decide to file for bankruptcy.
Not understanding the different types of bankruptcy
From July 2022 to July 2023, the number of consumer bankruptcy filings in the U.S. increased by 10 percent, according to the U.S. Courts. These filings consisted of two main types: Chapter 7 and Chapter 13. Chapter 7 involves the liquidation of assets to pay off debts, while Chapter 13 sets up a repayment plan.
Failing to attend mandatory credit counseling
If you plan to file for bankruptcy, you must first complete an approved credit counseling session. Neglecting this step or missing the session will result in your case getting dismissed.
Not keeping adequate financial records
Maintain thorough financial records during bankruptcy proceedings. Failing to keep records of income, expenses and transactions can make it harder to prove your financial situation to the court.
Filing consumer bankruptcy can help you improve your finances in many different ways. After you finish the filing process, put together a realistic budget that helps you prevent recurring financial issues in the future.