The Top Mistakes To Avoid When Filing For Bankruptcy

In this blog, we’ll discuss the key mistakes to avoid when filing for bankruptcy, helping you avoid common pitfalls and move towards a more stable financial future.

Filing for bankruptcy can feel scary, especially if you’re facing it alone. If it’s not handled correctly, it can lead to more problems than solutions.

But that’s where we come in. We have decades of experience in helping Canadians 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.

Key Points

1. Incomplete or Inaccurate Disclosure of Financial Information
2. Omitting Creditors from Your Filing
3. Neglecting to File Income Tax Returns
4. Accumulating New Debt
5. Liquidating Retirement Funds
6. Taking Equity Line of Credit Against Your Home
7. Transferring Assets Pre-Bankruptcy
8. Selective Repayment of Loans
9. Ignoring Collection Actions
10. 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 (saying you have less than you do) can result in criminal charges or the seizure of those assets.

2. Omitting Creditors from Your Filing

It’s really important to include every creditor in your bankruptcy filing. This means all debts, whether in your name alone or joint debts, must be declared. Missing a creditor 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 removal of this new debt, arguing that you took it on without any intention of repaying it since you are filing for bankruptcy so soon afterwards.

5. Liquidating Retirement Funds

Your RRSPs, pensions, and other retirement plans usually have protected status in bankruptcy. Cashing these out could mean you lose that money and potentially put your future financial security at risk.

6. Taking Equity Line of Credit Against Your Home

Borrowing against your home equity can complicate your bankruptcy case. You may need to justify your reasoning behind this move, why you took the money our 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 debt removal being denied 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 planning.

By avoiding these common mistakes, you can enjoy a smoother process and a more solid foundation for rebuilding your financial security.

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.