Three Common Bankruptcy Mistakes

Bankruptcy is often considered to be a sign of perhaps the ultimate failure. The fact of the matter is, one never knows what lies around the corner in this life and very often even our best laid plans go awry, sometimes through no fault of our own and sometimes through irresponsible spending, on credit cards for example, and often as a result of irresponsible lending.

Bankruptcy is actually a legal right. They should be viewed in extremis almost as a part of financial planning. This article is intended to help people who are considering bankruptcy avoiding some basic mistakes.

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1. If you are in serious financial trouble you can actually make things worse by delaying the inevitable. For example, borrowing money from friends or relatives might help in the short term, but if it's simply throwing good money after bad then you are better off declaring bankruptcy sooner rather than later to avoid emotional repercussions.

2. Transferring or concealing your assets is a really bad idea. For example transferring ownership of property to close friends or members of your family so that this property can be taken out of the estate and therefore the clutches of the court trustee, may reflect a noble attitude in wanting to keep your assets for the benefit of others, but the court will see this as a deliberate attempt at fraud. Consequences can be a fine or imprisonment and your bankruptcy dismissed making you in a far worse position than you were before you decided to file for bankruptcy. The fact of the matter is, people who oversee bankruptcy cases are generally specialist lawyers and they are no fools, consequently they seriously object to being treated like one.

3. Another temptation to avoid bankruptcy is to use the equity in your home by means of a home equity loan. There are two points here. The first is that it is impossible to borrow your way out of debt. Banks and various lenders get a very good deal with home equity loans, so it's no wonder that they will try and tempt you.

Second point is that a home equity loan is secured on your home. This creates what is called a lien on your property much like mortgage. These cannot be written off in bankruptcy. The fact of the matter is that if you declare bankruptcy before dipping in to the equity on your house you may well find that the homestead exemption in your state is sufficient to allow you to keep your home. This is particularly true of chapter 7 bankruptcy which removes your consumer debt, after which you may well be in a position to be able to afford to continue to pay your mortgage.

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