When it comes to the bankruptcy process, too many consumers end up making mistakes. Some try to cheat the system and play outside the rules, while others simply do not listen to their lawyer' s advice or pay attention to the rules when initiating the process. Still others make a mistake of putting their assets on the line to cover unsecured debts, only to end up in bankruptcy anyway down the road.
Here are three common bankruptcy mistakes you need to avoid:
1. Trying to hide your assets from the judge or trustee.
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When you go through Chapter 7, the trustee will try to get whatever he can on behalf of the creditors. Some assets are protected by state or federal law, including your primary residence and a modest vehicle. The details vary from state to state, and some states have limits depending on how much you owe and how much your house is worth.
Other assets, however, are not exempt. You need to make sure to list all of your assets accurately on your bankruptcy forms. You don't want to get a federal judge angry because you lied about what you owned just to avoid paying off some of your debt.
2. Leaving off certain creditors from the list
If you want to get all of your debts discharged in Chapter 7 bankruptcy (or as many of them as are allowed under the statute), then you need to make sure and properly list every creditor with the amount that you owe and the correct address. If you leave off any creditors, you can apply for an amendment to your case, but you don't want to take any chances. After all, the purpose of this entire process is to eliminate your debt, so you need to make sure and take advantage of it fully.
3. Using a home equity loan to avoid bankruptcy
This is a common mistake that occurs before bankruptcy and not during the legal proceedings. Bill collectors may put pressure on you and make you feel like you have to pay your bills no matter what. Meanwhile, credit counselors who work for the credit industry may convince you that home equity loans are superior to bankruptcy.
You need to be very cautious when considering this route. Keep in mind that your unsecured debt is unsecured -- it does not have any collateral backing it up. Why would you put your house on the line in order to pay these credit cards? Bankruptcy could have provided you with homestead protection while eliminating your debt.
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