Do’s and Don’ts of Declaring Bankruptcy

Maintaining financial health and stability is the biggest goal for the majority of people.

For some, it’s not that hard to achieve while for others who are struggling, it is more than challenging. But what does being financially healthy actually means in reality? The answer is simple.

If an individual or a business manages to meet all the obligations they have (or most of them), as well as potential debts, in a timely manner, it means that the very individual or company is solvent. However, if you are solvent, it doesn’t mean that you can meet all your short-term obligations, which is also extremely important for your financial health. This is called liquidity.

On the other hand, if an individual or a business isn’t able to stay financially healthy, which means they cannot pay their debts and other financial obligations, this opens a lot of questions on how to solve this problem and get out of this situation in a painless (or relatively painless) manner. If tracking your spending or re-tailoring your budget, taking a loan or using some of the many strategies available – doesn’t work altogether, there is one option left. That is, declaring bankruptcy.

First of all, if you want to use this financial instrument, you need to know what bankruptcy is, what is the definition and other aspects of it. Simply put, if you aren’t able to pay what you own, whether it’s bank debt, personal debt (debts to other people), or company debt, the last option you have is to file for bankruptcy. This is a legal process that may allow you to get out of your financial problems, by releasing you from some or all of your debts, depending on the type. This finally means that you would get an opportunity to start all over again, but this time make a fresh start, and rise yourself or your business from the ashes.

There are a lot of opinions on bankruptcy. When someone mentions this legal process or says this word out loud, it usually has negative connotations or at least people find it bad. But is it really the case? Is it bad or good for you, or is it both?

Everything that comes before filing for bankruptcy is bad. This means that you are facing financial issues that can’t be solved any other way. But this legal tool isn’t bad itself, but it rather offers amazing options for people who are struggling to get back on track. Especially if you take into consideration that businesses or people don’t necessarily have to come in this situation by poor financial decisions or because they have bad bankroll management. Global economic changes, and other occasions such as a high medical debt or the latest pandemic that left millions of people unemployed, can highly impact one’s business or personal finances, and this is one of the factors that are hard to predict and even harder to manage.

Before you opt for a second chance, you need to know if you can qualify for this option or not. First of all, if your income is too high for filing a bankruptcy then you cannot count on this type of support. There are also specific amounts (minimum and maximum) of debt you need to have in order to qualify. The best thing you can do is to consult a professional who can help you go through the whole process and figure out the best solution for your case. Check it out here.

However, if you’re still not sure or you’re having second thoughts about filing for bankruptcy, or you’ve already decided to start this process, there are some do’s and don’ts you need to be aware of.

GOOD COMMUNICATION AND EXPERTISE – DO

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What are some of the things you should be doing? First of all, always ask for professional advice (at least), but better – ask for professional help. Although you might think you can do it all by yourself, it’s always good to have someone experienced by your side. This is an extremely complex process and it comes with so many different segments that it might become overwhelming to deal with all that by yourself.

If you decide to start collaborating with a law firm or an attorney you need to make sure you have a great communication with them and this communication means being completely honest and open about everything you’ve been asked. Why is this so crucial? Not only is it legally punishable to present untruthful statements in court, but it would be easier for your attorney to help you if he knows all the circumstances.

For example, don’t try to hide any purchase you recently made from your lawyer and make sure not to miss out on listing both all of your assets and all of your debts. If you have a side hustle or a second source of income, don’t forget to tell your attorney about it, because it is also a part of your income and a very important factor when filing for bankruptcy. After all, you are on the same side and you have the same goal, which is fighting for your financial relief.

HAVING ALL THE DOCUMENTS IN ONE PLACE – DO

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Another thing you should be doing is Gathering all your documents that are relevant for your case these are all the financial documents such as the statements when it comes to your income all the current balances when it comes to your bank accounts your credit cards and also all the assets you have as well as everything you owe to someone. Simply put you need to have a paper proof for everything you are saying in court so make sure to get everything prepared beforehand. Your attorney will help you with this, but you also need to put in some time and effort. This also includes doing your taxes or filing your taxes since this is something you should do before you file for bankruptcy. Therefore, make sure to provide tax documents (or tax filings) as well.

TRANSFERRING MONEY OR SELLING ASSETS – DON’T

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Logically, one of the things you shouldn’t do in any case is selling your assets before filing for bankruptcy in order to get a bigger amount of money. Also, you shouldn’t transfer your money to any of your family members or friends in order to get the same thing. You cannot hide your assets no matter what you do and this can only result in a bad outcome for you. Not only some of these transactions can be undone, but during the legal process you will be seen as someone who wants to take advantage of the very process and it will turn out negatively. It can even end up in Criminal Court. You most certainly don’t want that. But even if you wanted to do a good thing: for example, if you wanted to pay your debts to some of your friends or family, doing that right before you file bankruptcy is not the right timing.