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15 Common Mistakes to Avoid When Filing for Bankruptcy Under Chapter 7

Filing for bankruptcy under Chapter 7 as an individual or business is a process that requires planning, preparation and active participation along the way. Mistakes before or during the process can prove costly—and, in many cases, they can lead to denial of the debtor’s petition in its entirety.

As a debtor seeking relief under Chapter 7, avoiding these mistakes is critical. Not only is filing an unsuccessful Chapter 7 petition a costly waste of time, but it can also prevent you from filing another petition for six months. Of course, if you need relief from an unmanageable debt load, failing to secure this relief can have its own set of consequences as well.

Don’t Make These 10 Mistakes When Seeking Bankruptcy Relief Under Chapter 7

What are the mistakes you need to avoid when filing for bankruptcy under Chapter 7? Here are 10 common errors that can lead to either a full or partial denial of discharge:

1. Submitting Information Not Substantiated By Documentation

When preparing your Chapter 7 bankruptcy petition, it is critically important to make sure that all of the information in your petition is substantiated by supporting documentation. You will need to include much of this documentation in the schedules filed with your petition, and if the information in your petition is inaccurate or unsubstantiated, this will lead to problems with the court.

2. Improperly Claiming Payments or Deductions

Calculating your ability to pay for purposes of a Chapter 7 bankruptcy filing involves examining your assets, income and liabilities while also applying various credits, exemptions and deductions. When making your calculations, you need to ensure that you are fully complying with the U.S. Bankruptcy code. Improperly claiming payments (i.e., claiming your full mortgage payment when you plan to sell your home) or deductions (i.e., deducting 104(k) contributions or children’s college expenses) can lead to problems as well.  

3. Duplicating Deductions

Chapter 7 filers also need to be careful to avoid duplicating deductions when performing their calculations. For example, cell phone payments are included in the standard utility deduction, and if you are filing and your spouse is not, you cannot re-list expenses included in the marital adjustment deduction in your ordinary deductions.

4. Paying Some Creditors But Not Others

Individuals and businesses seeking relief under Chapter 7 should generally avoid favoring certain creditors over others. If you are unable to make all of your payments (or your company is unable to make all of its payments) when preparing to file, you should consult with your lawyer about what to do.

5. Transferring Assets

Chapter 7 filers should also generally avoid transferring assets during the pre-filing stage. Not only is this likely to be unnecessary, but it can also trigger allegations of attempting to improperly shield the transferred assets and defraud your creditors and the bankruptcy court.

6. Buying Unnecessary or Luxury Items

Buying unnecessary or luxury items when seeking to discharge your debts in bankruptcy won’t go over well with your creditors or the court. If you can find a way to afford these items, the court will assume that you can find a way to pay your debts.

7. Omitting or Misrepresenting Information in Your Chapter 7 Filing

Omitting or misrepresenting information in your Chapter 7 filing can also prove to be a costly mistake. Even if done unintentionally, this can potentially lead to a denial of discharge.

8. Improperly Utilizing the Chapter 7 Bankruptcy Exemptions for Property

Chapter 7 allows debtors to claim exemptions for certain items of property, meaning that debtors can keep these items during the liquidation process. However, improperly attempting to shield assets from liquidation can also lead to a denial of discharge (among other potential penalties).

9. Failing to Attend Credit Counseling or Debtor Education

As a condition of obtaining relief under Chapter 7, debtors must undergo credit counseling and complete a debtor education course. Failing to attend either of these programs is grounds for denial.

10. File Under Chapter 7 When You Should File Under a Different Chapter

Finally, debtors need to avoid filing under Chapter 7 when they should file under a different chapter. Whether an individual debtor is ineligible based on the Chapter 7 “means test” or it simply makes more sense to pursue reorganization under Chapter 11, it is critically important to choose the best path forward.

5 Additional Mistakes to Avoid When Filing for Chapter 7 Bankruptcy

In addition to avoiding these mistakes that can lead to a denial of discharge, Chapter 7 bankruptcy filers need to avoid various other mistakes as well. For example:

  • Liquidating Your Retirement Account – Assets held in qualified retirement accounts are exempt from liquidation under Chapter 7. So, using your retirement savings to try to avoid a Chapter 7 filing generally isn’t a good idea.
  • Repaying Family and Friends – Just as Chapter 7 filers should not favor certain creditors over others, they should also avoid repaying their family and friends prior to filing.
  • Taking Out a Line of Credit or Second Mortgage – Chapter 7 filers can keep their homes in most cases. But, if you take out a line of credit or second mortgage to pay down your pre-existing debts, you could put your home at risk.
  • Filing for Chapter 7 Bankruptcy Pro Se – Due to the challenges involved in maximizing the benefits of a Chapter 7 filing, it is strongly in your best interests to hire an experienced lawyer.
  • Waiting Too Long to File – Far too many people wait far too long to file for bankruptcy. If you delay your Chapter 7 bankruptcy filing, you could put yourself in a far worse financial situation than necessary.

Get Help from an Experienced Chapter 7 Bankruptcy Lawyer in Miami

If you are thinking about filing for bankruptcy under Chapter 7, we strongly encourage you to speak with one of our attorneys before you do anything that could jeopardize your financial situation. To schedule a free, no-obligation consultation, please call 305-768-9909 or contact us online today.

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