|
One mantra you should definitely preach: Play it straight and simple. Some debtors get into trouble because they try to manipulate the system or they outright lie and cheat. For them, nobody will have sympathy whatsoever. May a thousand red ants invade their armpits!
Many more people turn their lawyers' hair gray with well-intentioned but ill-conceived efforts at making the most of a bad situation. That's unfortunate, and unnecessary. Most pitfalls are easily avoided when you know where they are. Below are the most common errors, so you can sidestep them now and avoid the hassles of dealing with them later.
Borrowing money from relatives
Asking your parents, children, or rich uncle for a loan is awfully tempting, but if you do, you'll probably live to regret it. For one thing, asking for a loan inevitably stresses relationships, and you're going to need the support and encouragement of your family as you undertake the bankruptcy process. For another, you simply can't borrow your way out of debt. Unless your benefactor has more money than she knows what to do with, filing bankruptcy and wiping out debts that you can't afford to pay just makes more sense to us than hitting up your loved ones.
Repaying money owed to relatives
If you ignore this advice and end up accepting a loan from a relative, about the worst thing you can do is pay it back if you're planning to file bankruptcy within the next year. Strange as it may seem, a bankruptcy trustee can sue any relative who received $600 or more from you during the year prior to bankruptcy — even if the payment was on a perfectly legitimate debt. The rationale is that your relatives shouldn't be paid when other creditors are left holding the bag.
Chipping away at debts with a home-equity loan
You can't borrow your way out of debt. It's pretty obvious that banks and other lenders are really pushing home-equity loans, and it's pretty obvious why. If they can get you to sign over the most valuable and most important asset in your life, they have you right where they want you — scared out of your wits and willing to eat cat food if necessary to keep up with your payments. Don't yield that kind of power to lenders. Odds are that if you file bankruptcy instead of obtaining a home-equity loan, you'll not only wipe out those pesky debts, you'll also be able to keep your home.
Draining retirement accounts to pay debts
Read that heading again! That's a bad, bad idea — albeit one that some credit counselors advocate. If there's even a remote chance that you'll end up in bankruptcy court, there's no point in squandering your retirement account. Oftentimes, pensions are protected in bankruptcy — meaning that you get to keep your retirement benefit and creditors can't touch it. However, if you voluntarily sign over your pension or drain it to pay the credit-card company, that money's lost; it's gone forever.
Neglecting to accurately list all creditors
A bankruptcy petition is no place to wing it. Don't guess. Instead, get it right. Make sure that all your creditors are listed. If you screw up, you can amend your petition later . . . maybe. But that's a bunch of trouble, and if the judge thinks you tried to hide something or to mislead the court, she may become very grumpy. Although some exceptions are in place, you need to assume that if you fail to list a creditor with an accurate mailing address, that debt may not get wiped out.
Concealing your assets
People who monitor bankruptcies aren't stupid, and they generally don't have much of a sense of humor. When you go out of your way looking for trouble, you'll surely find it. Don't play games. Don't assume things will go unnoticed. Don't "forget" to mention the vintage Mercedes sitting in your garage. Just play it straight.
Transferring assets to keep them away from creditors
Many people transfer their assets with the best of intentions, often shifting property to their children or other loved ones to keep it away from the groping paws of creditors. You can't do that. And, if you try, you'll almost certainly cause trouble for yourself and quite possibly for the relative or friend to whom you transferred property.
Making payments that you can't afford to make
Making payments to a bill collector that you can't afford to make is money down the drain, simple as that. Coming up with a few bucks here and a few there to temporarily pacify bill collectors puts a great deal of pressure on you. But the finger-in-the-dike approach quickly becomes overwhelming. You simply don't have enough digits, or dollars, to plug all those holes, and you'll probably stretch yourself to the breaking point if you try.
Thinking that bankruptcy is your last resort
Much can be said for preventive medicine — in matters of health as well as in matters of finance. So look at bankruptcy as a financial-planning decision rather than as your fiscal funeral. You don't have to wait until your home equity is blown, your relationships are shot, and your pension is kaput before exerting your right to a fresh start. As a rule: If you can't fully pay off all your debts (except mortgages) within three years, while living a reasonably restrained lifestyle, you definitely need to consider bankruptcy.
Filing bankruptcy too soon
Although filing for bankruptcy sooner rather than later usually is better for most folks, in some circumstances, delaying a bit is to your advantage. For instance, if you're contemplating divorce, expecting a sizeable income tax refund, in the process of repaying debts to family members (or have been in the recent past), or owing taxes that may be dischargeable in the near future, it can be better to wait. However, it's never too early to discuss your situation and your options with a good bankruptcy lawyer.
| 
