3 Mistakes to Avoid When Filing for Bankruptcy
Bankruptcy is a legally complicated process. Successfully filing for bankruptcy can offer you a fresh start with your finances, allowing you to turn your life around completely and leave the past behind. However, not everyone who files for bankruptcy has their case accepted. There are many reasons your bankruptcy filing may be rejected.
It’s important to learn about the rules for the kind of bankruptcy your filing for so you avoid spending your valuable time only to be rejected. There are a few common reasons why bankruptcy filings are rejected.
1. You don’t pass the “means” test. Most people file for a Chapter 7 bankruptcy. To have your unsecured debts discharged in this type of bankruptcy, you have to pass a court-imposed “means” test. This is how the court figures out how much disposable income you currently have. Should the court determine you have too much money, you can’t file for Chapter 7.
It’s best to have an experienced bankruptcy lawyer review your case before you go to court. In a free initial consultation, a lawyer can generally tell you if you’re going to be rejected because of the means test. In these cases, you may still be able to file for Chapter 13 bankruptcy.
2. You don’t provide your tax documents. Before a court can provide you with bankruptcy protection, they need to know your tax information. You must prove you in fact do not have the means to pay back your debts. If you misrepresent or fail to produce your tax documents, a court will likely dismiss your case.
This is a new regulation regarding bankruptcy, resulting from 2005 bankruptcy reform. Chapter 7 filings require you to give all requested tax documents to the court. Filing your taxes can be prohibitively difficult, and if you’re in financial trouble, paying somebody to do them can be beyond your means.
3. Somebody challenges your request. The goal of filing for Chapter 7 bankruptcy is to discharge your debts. This is a court order permanently removing you of legal liability to your debts, including medical and credit card bills. If a bankruptcy trustee or a creditor challenges your discharge, you may fail to successfully file for bankruptcy.
A challenge typically occurs if somebody suspects you committed fraud during your bankruptcy filing. If you made false statements about your financial circumstances, hid or assets, or did something else dishonest with your finances in order to discharge your debts, these could all result in a challenge that could lose you your Chapter 7. The best policy is to be fully honest about all information you give the court. Follow all the instructions the court gives you.
Reese Baker is the owner and founder of Baker & Associates, one of the top bankruptcy firms in Houston. Baker & Associates aims to provide clients with a fresh start by eliminating debt, fighting foreclosure and repossession, and even help rebuild credit. As a Bryan/College Station bankruptcy attorney, Reese has had the opportunity to help people get out of debt and get on the path to financial freedom.