Navigating Bankruptcy: Watch Out For These Nine Common Pitfalls
When the financial waters get turbulent, bankruptcy may seem like the only lifeline. But, as with any significant decision, it requires careful consideration and a keen eye for potential pitfalls. Here’s a guide that reveals The Top 9 Mistakes To Avoid When Considering Failing For Bankruptcy to navigate through this complex process effectively.
1. Non-Disclosure of Financial Information
First and foremost, honesty is paramount when filing for bankruptcy. Any attempt to conceal or misrepresent your financial status, including assets, debts, income, expenses, and financial history, can lead to severe repercussions.
The Bankruptcy & Insolvency Act (BIA) emphasizes that every debtor must provide complete and accurate information under the penalty of perjury. Misrepresentations, like failing to disclose an asset, might result in criminal prosecution or seizure of the undisclosed property by the trustee.
2. Omission of Creditors
Another common blunder is neglecting to include all creditors in your bankruptcy filing. It’s critical to note that every debt under your name or as a joint debt needs to be part of your bankruptcy filing.
3. Neglected Income Tax Returns
One of the crucial steps before filing for bankruptcy is preparing your income tax returns. These documents play a significant role in assessing your current and past earnings, asset holdings, and potential priority tax claims.
4. Accumulation of New Debt
Accumulating new debt just before filing for bankruptcy is a big no-no. If you run up debts in the 60 to 90 days prior to filing, creditors might object to your discharge. They could argue that you had no intention of repaying the loan, making it ineligible for discharge in bankruptcy. The same applies to cash advances and purchases made on credit cards.
5. Liquidation of Retirement Funds
Tapping into your Registered Retirement Savings Plan (RRSP), pension or other retirement payment plans might seem like a quick fix, but it comes at a high cost. By doing so, you risk losing the exemption status these plans enjoy.
6. Equity Line of Credit Against Your Home
Taking out an equity line of credit against your home might complicate your bankruptcy proceedings. You might need to explain the purpose and intent behind such a move and account for the use of the funds received.
7. Asset Transfer
Transferring or moving assets from your name to another party is a risky move that could land you in hot water. If you’re planning to file for bankruptcy, avoid selling, transferring, or hiding assets. Doing so might lead to denial of discharge and potential criminal penalties.
8. Selective Repayment of Loans
Repaying loans to friends, relatives, or other creditors shortly before filing for bankruptcy can be construed as a ‘preferential transfer.’ The bankruptcy trustee may file an adversarial proceeding to recover the money and disburse it equally among all your creditors.
9. Ignoring Collection Actions
Ignoring impending collection actions can lead to detrimental outcomes. Creditors may obtain a judgment against you, garnish your wages, repossess your car, or foreclose on your house. Time is of the essence in these situations, and it’s crucial to act promptly.
If you anticipate an influx of money like an inheritance, a significant tax refund, a lawsuit settlement, or repayment from a loan, consider using this money to settle with creditors and avoid bankruptcy. You might also consider making a Consumer Proposal to your creditors through the Trustee.
Navigating bankruptcy is a complex process, but avoiding these common mistakes can make the journey smoother. Remember, professional advice is invaluable when considering such a significant financial decision. Seek out a financial advisor or a bankruptcy attorney to help guide you through the process.
