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Filing for bankruptcy can feel like navigating through a stormy sea of financial troubles. It’s a process filled with complexities and, if not handled correctly, can lead to more problems than solutions.
But that’s where we come in. We have decades of experience in helping people just like you find their way through bankruptcy. We know how stressful this can be, and we don’t want you to face it alone.
In this blog, we’re going to discuss the key mistakes to avoid when filing for bankruptcy, helping you steer clear of common pitfalls and move towards a more stable financial future.
Key Points
- Incomplete or Inaccurate Disclosure of Financial Information
- Omitting Creditors from Your Filing
- Neglecting to File Income Tax Returns
- Accumulating New Debt
- Liquidating Retirement Funds
- Taking Equity Line of Credit Against Your Home
- Transferring Assets Pre-Bankruptcy
- Selective Repayment of Loans
- Ignoring Collection Actions
- We’re Here to Help
1. Incomplete or Inaccurate Disclosure of Financial Information
When it comes to bankruptcy, honesty really is the best policy. The foundation of a bankruptcy filing is complete transparency about your assets, debts, income, expenses, and financial history.
Remember, honesty isn’t just about morals; it’s a legal requirement under the Bankruptcy & Insolvency Act (BIA). Failing to disclose assets, or misrepresenting your situation, can lead to criminal prosecution or seizure of the assets you kept quiet about.
2. Omitting Creditors from Your Filing
It’s really important to include every creditor in your bankruptcy filing. This means all debts, whether they are in your name alone or joint debts, must be declared. Missing a creditor out can lead to complications and potentially jeopardize the entire process.
3. Neglecting to File Income Tax Returns
Ensure your income tax returns are up to date before filing for bankruptcy. These returns are a vital part of assessing your financial situation. Because of this, they need to be considered during the bankruptcy process.
4. Accumulating New Debt
Taking on new debt just before filing for bankruptcy, especially within 60 to 90 days of filing, is a red flag. Creditors might challenge the discharge of this new debt, arguing that it was incurred without intention to repay.
5. Liquidating Retirement Funds
Your RRSPs, pensions, and other retirement plans usually have protected status in bankruptcy. Cashing these out can lead to significant financial loss and jeopardize your future security.
6. Taking Equity Line of Credit Against Your Home
Borrowing against your home equity can complicate your bankruptcy case. You may need to justify the intent behind this move and how you used the funds – it’s best to avoid this if possible.
7. Transferring Assets Pre-Bankruptcy
Transferring assets out of your name before filing for bankruptcy can be seen as an attempt to hide them. Even if you weren’t trying to hide your assets, this action can lead to a denial of discharge and even criminal penalties.
8. Selective Repayment of Loans
Paying off loans to friends, family, or other creditors just before filing is known as a ‘preferential transfer.’ The bankruptcy trustee might take legal action to recover these payments for equal distribution among all creditors.
9. Ignoring Collection Actions
If creditors are taking action against you, like wage garnishment or foreclosure, it’s vital to address these issues quickly. Ignoring them can lead to legal complications, even after filing for bankruptcy.
We’re Here to Help
Bankruptcy is a tool for getting a fresh financial start, but it needs careful navigation. By avoiding these common mistakes, you can enjoy a smoother process and a more solid foundation for your financial rebuilding.
If you’re considering bankruptcy, or if you’re already in the process and feeling overwhelmed, our team of licensed insolvency trustees is here to help.
We provide personalized guidance, support, and solutions tailored to your unique financial situation. Reach out to us for professional help and take the first step towards regaining control of your financial life with confidence.
