Top Mistakes People Make When Filing for Bankruptcy — and How to Avoid Them

Making the decision to file for bankruptcy is never easy. If you're drowning in debt and feeling overwhelmed, know that you're not alone—and that bankruptcy can offer a fresh financial start. However, the process is complex, and even small missteps can delay your case, cost you valuable assets, or even result in your case being dismissed. Understanding common mistakes before you file can make all the difference in achieving the relief you deserve.

Don't navigate bankruptcy alone. If you're considering filing, contact RHM LAW LLP today through our online contact form or call (213) 344-0043 to schedule a consultation and protect your financial future.

Failing to Explore All Your Options First

Many people assume bankruptcy is their only solution when facing financial hardship, but it's important to consider all available alternatives before making this significant decision.

Bankruptcy can provide powerful debt relief, but it also has lasting consequences for your credit and financial life. Before filing, take time to explore other debt management strategies that might work for your situation. Some alternatives include:

• Negotiating directly with creditors to reduce balances or create payment plans
• Working with a credit counseling agency to consolidate debts
• Considering debt settlement programs for unsecured debts
• Exploring loan modification options if mortgage debt is your primary concern

If these options don't provide adequate relief, bankruptcy may be the right choice. An experienced attorney can help you evaluate whether Chapter 7 bankruptcy or another form of bankruptcy protection makes sense for your circumstances.

Understanding your full range of options ensures you make an informed decision that truly serves your long-term financial goals.

Choosing the Wrong Type of Bankruptcy

Not all bankruptcy filings are the same, and selecting the wrong chapter can lead to unnecessary complications or fail to provide the relief you need.

The two most common types of consumer bankruptcy are Chapter 7 and Chapter 13. Chapter 7, often called "liquidation bankruptcy," typically discharges most unsecured debts within a few months but may require you to give up certain assets. Chapter 13, known as "reorganization bankruptcy," allows you to keep your property while repaying debts through a three-to-five-year payment plan.

Choosing between these options depends on several factors:

• Your income level and whether you qualify for Chapter 7 under the means test
• Whether you own significant assets you want to protect
• If you're behind on mortgage or car payments and need time to catch up
• The types of debts you have and which can be discharged

Filing under the wrong chapter can waste time and money. You might end up having to convert your case or refile entirely, which delays your fresh start and adds legal fees.

Working with a knowledgeable bankruptcy attorney helps ensure you select the bankruptcy chapter that best fits your financial situation and goals.

Waiting Too Long to File

When bills are piling up and creditors are calling constantly, it's tempting to put off making hard decisions. Unfortunately, delaying bankruptcy can actually make your situation worse.

The longer you wait to file, the more damage accumulates. Creditors may file lawsuits, obtain judgments, garnish your wages, or levy your bank accounts. You might drain retirement accounts or rack up additional debt trying to stay afloat, only to lose those funds that could have been protected in bankruptcy.

Some warning signs that it's time to seriously consider bankruptcy include:

1. Using credit cards or loans to pay for basic necessities
2. Missing payments on multiple accounts each month
3. Facing foreclosure, repossession, or wage garnishment
4. Having debt collectors threaten legal action
5. Feeling constant stress and anxiety about your financial situation

Once you file for bankruptcy, an automatic stay immediately stops most collection actions, giving you breathing room to address your debts properly. The sooner you file, the sooner you can begin rebuilding your financial life.

Taking action promptly can help you preserve more of your assets and avoid additional legal complications that make recovery more difficult.

Failing to Disclose All Assets and Debts

One of the most serious mistakes you can make in bankruptcy is hiding assets or leaving out creditors from your filing documents.

Bankruptcy requires complete honesty and transparency. You must list all your property, income, debts, and financial transactions on your petition. This includes everything from bank accounts and vehicles to valuable jewelry, tax refunds, and even pending lawsuits where you might receive money.

When you file for bankruptcy, you sign your documents under penalty of perjury. Failing to disclose assets or debts can result in:

• Dismissal of your bankruptcy case
• Loss of your discharge, meaning debts remain
• Denial of future bankruptcy filings
• Criminal prosecution for bankruptcy fraud in extreme cases

Sometimes people omit assets accidentally, thinking certain items don't matter or forgetting about old accounts. Others deliberately hide property, hoping to protect it from the bankruptcy process. Both scenarios can have devastating consequences.

Even if you think an asset has no value or a debt seems insignificant, include it in your filing. Your bankruptcy attorney can help determine what's protected under California bankruptcy laws and ensure you complete your documentation accurately and thoroughly.

Making Large Purchases or Transferring Assets Before Filing

If you're planning to file for bankruptcy, any major financial moves you make beforehand will be closely scrutinized by the bankruptcy trustee.

The bankruptcy court examines your financial transactions from months or even years before your filing date. Making large purchases on credit, transferring property to family members, or selling assets for less than they're worth can all raise red flags.

These actions may be viewed as fraudulent attempts to abuse the bankruptcy system. Specifically, the court looks for:

• Purchases of luxury goods or services totaling more than $800 within 90 days of filing
• Cash advances exceeding $1,100 within 70 days of filing
• Transfers of property to friends or family for little or no payment
• Moving assets into protected accounts to shield them from creditors

If the trustee determines you made fraudulent transfers, those debts may become non-dischargeable, meaning you'll still owe them after bankruptcy. The trustee can also reverse asset transfers, forcing recipients to return property or pay its value into your bankruptcy estate.

Being strategic about timing is important. Discuss any planned transactions with your attorney well before filing to avoid unintentional problems that could jeopardize your case.

Not Working with an Experienced Bankruptcy Attorney

While it's technically possible to file for bankruptcy without legal representation, doing so dramatically increases your risk of costly mistakes.

Bankruptcy law is complex and filled with technical requirements, deadlines, and exemptions that vary by state. Missing a filing deadline, incorrectly valuing assets, or failing to claim appropriate exemptions can cost you thousands of dollars or result in case dismissal.

An experienced bankruptcy attorney provides invaluable guidance throughout the entire process:

• Evaluating whether bankruptcy is your best option
• Determining which bankruptcy chapter suits your situation
• Preparing and filing all required documents accurately
• Representing you at the 341 meeting of creditors
• Protecting your rights if creditors object to your discharge
• Advising you on rebuilding credit after bankruptcy

The cost of hiring an attorney is often far less than the financial losses you'd suffer from filing incorrectly. Many bankruptcy attorneys offer flexible payment plans and free initial consultations to make legal representation accessible.

Having professional guidance helps you navigate the bankruptcy process smoothly and positions you for the best possible outcome.

Get the Fresh Start You Deserve

Filing for bankruptcy doesn't have to be overwhelming or frightening. By avoiding these common mistakes and working with knowledgeable legal counsel, you can successfully navigate the bankruptcy process and emerge with a clean slate. The key is taking action early, being completely honest in your filings, and getting professional guidance every step of the way.

If you're struggling with debt and considering bankruptcy in Los Angeles or the surrounding areas, RHM LAW LLP is here to help. Our team understands the challenges you're facing and can provide the guidance you need to make informed decisions about your financial future.

Contact us today through our online contact form or call (213) 344-0043 to schedule your consultation.