Mistakes to Avoid

Ignoring the lawsuit because you owe the money

Owing the money does not mean the other side is entitled to everything it asks for. It does not excuse them from proving their case either. When you do not respond, a default judgment is entered. A default judgment is the automatic loss entered when no one answers the lawsuit.

Nobody checks their numbers. Nobody examines whether you were properly served. Nobody asks whether the required notices were ever sent. The response deadline is short and it does not wait for you to feel ready.

Answering keeps your options alive. Ignoring gives them all away.

Cashing out retirement to pay debts that bankruptcy would have erased

This is the most expensive mistake we see, and we see it constantly. Qualified retirement accounts are protected in bankruptcy. Credit card and medical debt is typically dischargeable. Draining the protected account to pay the erasable debt, with taxes and early-withdrawal penalties on top, converts money the law would have let you keep into money that is simply gone.

The debt was dischargeable the whole time. The retirement account was protected the whole time.

Borrowing against your house to pay credit cards

A home equity loan converts credit card debt, which bankruptcy can erase, into debt secured by your home. If the underlying problem is not solved, you have taken debt the law could have wiped out and attached it to the very asset you are trying to protect. Before you sign, find out whether the debt could simply be discharged instead.

Paying back family and friends first

A loyal instinct with a legal consequence. Payments made to insiders in the period before a bankruptcy filing can be recovered by the trustee. Insiders means family, friends, and business partners. That means the relative you repaid can be sued to give the money back.

If repaying someone you love matters to you, say so at the consultation. There are right ways and wrong ways to do it, and they are mostly a matter of timing.

Moving assets out of your name

Putting the house in a brother’s name or signing the car over to an adult child before filing feels like protection. It reads, in court, as fraud. The system has seen this move ten thousand times and has rules built specifically for it. It can cost you exemption protections you would otherwise have had, and in bad cases the discharge itself.

The irony: most of the assets people try to hide this way could have been fully protected by doing nothing.

Running up the cards once you know you’re going to file

Cash advances and significant charges shortly before filing are presumed fraudulent. That can make those specific debts survive the discharge and invite objections that complicate the whole case. The moment bankruptcy becomes a real possibility, stop borrowing. What you charged before you knew is rarely the problem; what you charge after can be.

Paying a “rescue” company instead of talking to a lawyer

The moment a foreclosure or judgment hits the public record, the offers begin arriving: debt settlement plans, foreclosure rescue programs, document preparation services. Most cannot appear in court for you. Creditors have no obligation to negotiate with them. Lawsuits continue while you pay their fees, and settled debt can generate a tax bill.

Ask two questions to unmask nearly all of them: what is the name of the lawyer handling my case, and is that lawyer licensed in Illinois? Check the answer yourself, free, at iardc.org. Watch for the other warning signs too: payment demanded before anything is in writing from your lender, instructions to stop talking to your servicer, a guarantee of approval, or a request to sign over your deed.

Making a payment on an old debt without checking the clock

Illinois puts time limits on collection lawsuits, and very old debts may no longer be enforceable in court. But a payment can restart the clock, even a small “good faith” payment a collector talks you into. Collectors know this. It is precisely why they call about debts from years ago and ask for something small.

Before you pay anything on an old account, find out whether the law still requires you to.

Starting the paperwork the week of the sale date

A loan modification takes weeks to review. A short sale needs a buyer and lender approval. Mediation must be scheduled. The options people most want are the ones that need the most lead time.

They are usually out of reach by the time the sale is days away. The week you first fall behind is the right week to find out your options. → Save Your Home

Keeping your money in a bank you owe money to

If you have a loan or credit card with the same bank that holds your checking account, the bank may have the right to take your deposits to cover its own debt. A creditor with a judgment can freeze the account entirely. Where you keep your money while resolving a debt problem is a practical question with a simple answer. It is one of the small things we walk through at the consultation.

Filing just before money arrives

An inheritance, a lawsuit settlement, or a large tax refund that arrives shortly after you file may become part of the bankruptcy case. Timing the filing around money you expect is a real decision with real stakes. Are you expecting money from anywhere? Tell us before you file, and we will time the case around it.

Deciding when to move out without advice

Leaving too early can give up ownership rights and negotiating leverage while the debt stays yours. Staying too long on a home you have decided to give up can mean owing taxes, association dues, and insurance while your name stays on the title. There is a right answer for your situation, and it is worth a phone call before you load the truck.

Letting your homeowner’s insurance lapse

A lapse lets the servicer buy coverage for you at a much higher cost and add it to your loan balance, which deepens the hole. There are rules about how and when a servicer may do this. If it has already happened, bring the notices and we will check them.

Trusting a verbal promise that the sale is postponed

A phone assurance that a sale has been moved is worth very little on the day of the sale. Get written confirmation, and keep the name, date, and time of every call you make. If the servicer will not put it in writing, treat the original date as live and call us.