Commonly Made Mistakes

1. Waiting too long to get good advice: Most of my clients come to see me only after they've been under financial pressure for a long time. Waiting only makes your health and personal relationships worse.  Additionally, many people sell their assets to pay creditors.  Then, after they have no more assets, the come to see me to wipe out their remaining debt.  
Many times those assets would have been protected in their bankruptcy, so the debt could have been wiped out without the loss of those assets.  

2. Paying credit cards instead of mortgages, car payments and taxes. Remember, when a bankruptcy is filed, those credit cards will usually be wiped out, so they should be the lowest priority in most instances.

3. Using your 401K or IRA to pay credit cards and other dischargeable debts. Those types of retirement accounts usually are safe in bankruptcy. They should not be used to pay debts which can be wiped out in a bankruptcy.

4.  Co-signing for Student Loans and other debts.  I know that we find it difficult to say no.  Especially when it is a son or daughter and it is for their education.  But let me give you an example of a real situation.  Dad co-signed for son's student loans.  The loans exceeded $100,000.00.  They have a falling out and the son stops communicating with the dad.  He finishes school and doesn't have employment. Son refuses to defer the loans despite dad's requests.  The loans go into default and the collectors come after dad.  Because these loans cannot be discharged in his Chapter 7, we filed a Chapter 13 for dad to stop the collection activity and arrange a payment plan. 
Unfortunately, he has 2 other children and he won't be able to help them with their education because of this situation.  Remember, you have other obligations to take care of.  In fact, you'll probably be retired before these loans are paid off.  If something goes wrong, you and your family can be hurt.  Even your retirement income could be jeopardized. 

5. Transferring assets to protect them from creditors. Most such transfers can be set aside by a bankruptcy trustee.

6. Not disclosing transfers of assets. This could make your situation worse.

7. Incurring debt immediately prior to filing your case. Those types of debts are generally not dischargeable and could have other negative consequences.

8. You must properly disclose all assets, liabilities, income and expenses.

9.  Failing to tell your parents to do proper estate planning can be a disaster.  If you file a Chapter 7 and become entitled to inherit property within the next 6 months, most of that inheritance will have to be paid to your creditors.  If you file a Chapter 13 case, that time may be extended to up to 5 years.  The solution is really quite simple.  Your parent can change his or her will.   There are several different ways to do this, but if you don't want to lose your inheritance to your creditors, you'll be well advised to address this issue. 
Here's a real situation, I consulted with a man whose mother had passed away and left him a beautiful home on Lake Champlain in New York.  Unfortunately, he had filed a Chapter 7 (not with me) only a couple of weeks before his mom passed away.  
The Chapter 7 Trustee was now in the process of selling that lovely home.  All of his creditors are going to be paid in full.  Plus he had to pay the Trustee's fees and costs as well.  And he had no control over the sale.  All of this could have been avoided with proper planning.   What a shame!    


Bankruptcy relief is available to those honest people who need a fresh start. The Courts want to help, but full disclosure is expected and required. It is best to speak to your attorney if you have any questions or concerns.