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2 mistakes to avoid when declaring bankruptcy

On Behalf of | Oct 26, 2022 | Bankruptcy

If you are going through financial difficulty, with creditors in hot pursuit, one of the options you might consider is declaring bankruptcy. Done right, bankruptcy can afford you the debt relief you need to regroup and get back on your feet, financially speaking.

However, bankruptcy is a complex legal process. The last thing you want is to make costly mistakes that can worsen your financial situation or land you in a legal dilemma. Here are two common mistakes you need to steer clear of while declaring bankruptcy.

Filing the wrong chapter

Basically, there are two types of personal bankruptcies: Chapter 7 and Chapter 13 bankruptcies. Each chapter is designed to discharge specific debts. And it is important that you file the right chapter, lest your claim is denied.

Chapter 7, also known as liquidation bankruptcy is designed for individuals with limited income who are unable to pay unsecured debts such as medical and credit or debit card debts. While declaring Chapter 7 bankruptcy, your assets will be sold to pay off your debts. Chapter 13, on the other hand, is designed for individuals with secured debts. Chapter 13 allows you to work out a repayment plan for your debts.

Transferring assets to another person

It is not uncommon for some people to try to hide assets by transferring them to friends and family to avoid liquidation. Actually, this does amount to bankruptcy fraud, and it can lead to the denial of your claim. But that’s not all. Bankruptcy fraud can also attract legal consequences. A conviction for bankruptcy fraud can lead to five-year imprisonment as well as fines of up to $250,000.

Bankruptcy can provide much-needed financial relief when you are chocking in debt. Find out how you can avoid costly mistakes while filing for bankruptcy in Virginia.