The web is full of business “how to” information. But sometimes it can be more instructive — or at the very least, more memorable — to highlight some things that, instead of helping you surge upwards and onwards, will plunge you further and deeper into whatever hole you’re digging. And that brings us to the topic of bankruptcy.
Now, before I highlight some warnings about filing for bankruptcy, let me start with this: despite the fact that the word “bankruptcy” might be spending cold shivers up and down your spine, it’s important to keep in mind that the term technically represents a legal status, not a personal condemnation. What’s more, bankruptcy in the U.S. is surprisingly common. There were just under 800,000 bankruptcy filings in 2016 — or about 2200 a day.
Of course, even though it’s not as rare as you might think, filing for bankruptcy – whether personally, or behalf of your business (done to restructure debts or liquidate) – is a major step, and needs to be researched and planned carefully. To ensure that you head in the right direction and avoid devastating pitfalls that could wreck your financial foundation, here are three things you absolutely never want to do if you’ve decided this is your best course of action:
Fail to give your bankruptcy attorney the whole truth, and nothing but the truth.
No, you aren’t under oath with your bankruptcy attorney – although, frankly, you would be wise to look at things that way, because full disclosure is your only safe option. Everything you certify is going to be handed over to a court appointed trustee who is legally obligated to perform due diligence, and scrutinize everything down to the proverbial paper clips. Don’t let fear, overconfidence, or embarrassment keep you from telling your attorney everything; especially since withholding information could do more than put an even bigger dent in your financial position. It could lead to criminal prosecution.
Go deeper and deeper (and deeper) into debt.
The moment you file for bankruptcy you need to shift gears and stop spending. This isn’t just a lifestyle change designed to help you restore your financial health. You’ll be legally obligated to cut back, or else your creditors can potentially deny your claims and start liquidating your assets. What’s more, if you add to your debt load — such as taking out a loan or going on a credit card spending spree – then you could be charged with fraud, if your creditor can establish that you had no intention of paying the money back as agreed.
Be unaware of the limitations and consequences of different types of bankruptcy filings.
There are three common types of bankruptcy filings: Chapter 7, Chapter 11, and Chapter 13. Each option has specific rules, regulations, limitations and consequences. Frankly, the amount of misinformation on the web about this aspect is staggering, with people making statements that are somewhere between incomplete and outdated, to flat out wrong and dangerous. For example, many people who file for Chapter 7 aren’t aware that the filing will stay on their credit report for 10 years.
The Bottom Line
Filing for bankruptcy is a serious step, and knowing what not to do is as important as knowing what to do. Assume nothing, and ignore well-meaning colleagues, neighbors and relatives who claim to know “how things really work.” The only person who you should be getting counsel from is your bankruptcy attorney.
Looking for more advice and insight on bankruptcy? For more information click here.