|"Here be Dragons" is a phrase that was supposedly placed on old maps at the edges of the known world. In fact, that may not have happened but let's not let reality get in the way of a good phrase.
What does "Here be Dragons" have to do with bankruptcy? The short answer is that many people, including some attorneys who don't practice bankruptcy law, think that the process of bankruptcy is simply one of filling out forms and then filing them with the court, while in fact nothing could be further from the truth. Here be Dragons? Oh yes.
Let's keep this simple and only consider a Chapter 7 bankruptcy, the one in which you get rid of all your unsecured debts (like credit cards) quickly. Here are a few of many ways your bankruptcy case could produce undesired outcomes.
• You forget something you own, including something so uncertain as the right to sue someone for something they did or did not do at some time in the past. If the trustee assigned to your case discovers that item (and they have their ways), you might lose that item to your creditors while you might have been able to keep it had you listed it properly.
• You repay a relative the money he or she loaned you. Many people want to do this before they file bankruptcy. After all, paying your relative is surely more important than paying your credit cards, right? The truth is that if you did this within a year before filing bankruptcy, the trustee could sue that relative and force him or her to return that money to the trustee for your creditors. So you got exactly no benefit from paying your relative with your in-short-supply money and the relative got the headache of a lawsuit and an order to pay money that he or she may not still have.
• You give your car to your sister so it won't go to your creditors. At the least, the trustee can undo that transfer. At worst, you (1) may have your entire bankruptcy case dismissed and (2) be prosecuted for bankruptcy fraud, a felony; you know, an orange jump suit.
• You miscalculate or misapply exemptions (protection from creditors) to the things you own. Presto, you may lose things to your creditors that you thought you were going to get to keep. Exemptions are not simple.
There are many more examples, but those four are intended to make you realize that dangers lurk in every bankruptcy filing. Why do you think bankruptcy lawyers, at least the good ones, spend lots of time researching individual cases and asking each other questions? Because individual situations aren't simple and close analysis is required even for those trained and experienced in this area of law.
A Fresh Start through bankruptcy, under the proper circumstances, is a right you were given by Congress. Don't let dragons take it away from you.