Filing for bankruptcy can be a powerful way to restructure or discharge overwhelming debt. However, even small missteps during the process can raise red flags and jeopardize your case. In some situations, these mistakes may even result in serious allegations of fraud, making matters worse than before the application was filed.
Avoiding the following mistakes may help protect your interests and keep your bankruptcy on track.
1. Leaving out assets or hiding property
One of the most common mistakes in bankruptcy filings involves the failure to disclose assets. Some individuals believe they can protect certain items by simply omitting them from paperwork. Unfortunately, even if the omission is unintentional, it may be viewed as an attempt to hide assets. The court requires a complete picture of what you own to fairly determine which debts can be discharged and what assets may be exempt.
2. Undervaluing what you own
Another issue that can harm your bankruptcy application is placing an inaccurate value on your property. If the court finds that items such as jewelry, equipment or collectibles have been significantly undervalued, it may suspect that you are trying to protect assets through misrepresentation. Gathering appraisals or purchase records before filing can help avoid this problem.
3. Transferring assets to others before filing
Some people try to protect money or property by giving it to family or friends in the months leading up to a bankruptcy. These transfers are often easy to detect through financial records and may be considered an effort to defraud creditors. The court may look back months or even years to identify suspicious transactions that could affect your eligibility for relief.
4. Filing multiple bankruptcies in bad faith
Using bankruptcy repeatedly as a way to avoid paying debt without a sincere plan for recovery can be considered abusive. If you take on new loans without the intention of repaying them and then file for bankruptcy, your actions may be seen as fraudulent. Patterns of repeat filings and recent luxury spending are common red flags.
If you are unsure about your application or how to avoid these issues, seeking legal guidance before filing can help you understand the process and protect your rights.