Things You Shouldn’t Do Before Filing For Bankruptcy

According to data compiled by, 2022 saw nearly 400,000 bankruptcy filings. Usually seen as a lifeline for most people who are struggling with debt, individuals can file for bankruptcy on behalf of themselves or their businesses.Regardless of what type of bankruptcy you’re filing for, there are some general mistakes that you will want to avoid before you take that first step.Whether it’s paying some lenders instead of others or failing to list all assets under your name, these mistakes can be detrimental to your bankruptcy filing.So, to make sure that your bankruptcy filing goes by smoothly, here are a few mistakes that you absolutely need to avoid. 

Mistakes You Need to Avoid

While you might think that hiring an experienced bankruptcy lawyer can save you from a lot of these mistakes, some happen before you even go for your first consultation.But even when you’re with the right attorney, understand that they will not be able to make informed decisions on your behalf. So, it is best to consider these different factors before you file for Chapter 7 bankruptcy. 

Letting Your Accounts Freeze

The first big mistake that you want to avoid before you start filing for bankruptcy is keeping your account open in a bank known for freezing accounts. Wells Fargo is a good example of such a bank, despite it being a gray area in bankruptcy law. While this might sound counter intuitive, even if you don’t owe any money to the bank where you have your account open, you are still very likely to have your account frozen. 

This can start a process where you will have to appeal to those bank accounts being exempt from the bankruptcy proceedings, which can take upwards of 60 days. So, to avoid all of this, you should consider moving your checking account to a different bank. As for the savings account, that can be a little more complicated, so you should discuss it with your bankruptcy lawyer.

Selling Or Transferring Ownership Of Assets Before Filing For Bankruptcy

After filing for bankruptcy, the court will look into your transaction history. They not only do this to create a better reimbursement plan for creditors by seeing an individual’s spending habits but also check if that person is trying to hide their assets. Therefore, selling off your assets or changing ownership before you file for bankruptcy can be very suspicious. 

You need to wait at least six months or a year before you can file for bankruptcy after transferring ownership of assets to someone.In fact, it is very likely that you might be charged with bankruptcy fraud, as the court could see you trying to artificially reduce the assets you have before filing for bankruptcy.How long you have to wait before you can file for bankruptcy can also change depending on your state, so it is best that you confirm with your debt attorney.

Maxing Out Credit Cards Before Filing

Another mistake that many filers will usually make before they give in their paperwork is maxing out their credit cards. Just to be clear, using your credit cards before you file for bankruptcy is considered fraud, there are no two ways about it.While using it from time to time on essentials is not a bad idea, intentionally maxing it out does make it obvious to the creditors and the court reviewing your case. You could be taken to court over bankruptcy fraud, and that could lead to further complications. 

Granted, if you have used your credit cards but later realized that you will have to file for bankruptcy, this is a different situation.You will have to talk to your debt attorney about how to move past this and mitigate the credit card debt that you accumulated. 

Paying off Favored Creditors

One more thing that you will have to be especially careful of when filing for bankruptcy is preferential transfers. After filing for bankruptcy, the trustee can go to some normal creditors who you have already paid off in the 90 days before filing and demand to return it to the estate. After taking their share, they will divide that money amongst the other creditors. 

This can get even worse when you’re dealing with preferential transfers to friends and family, as the trustee can trace money paid to them for up to a year. And if they don’t have the money that you paid them back, then the trustee can garnish them as well. 

Keeping An Account In A Bank That You Also Applied To A Personal Loan With 

Applying for a personal loan with a bank while having an account there means that the bank can take money out of your account to pay off your loan.So, even if you have yet to file for bankruptcy, they might be deducting a set amount from your account every month. If you file for bankruptcy, it is likely that they will freeze your account entirely. The bank can also forgo sending you a notice for the money it takes out, better known as the right to set off. 

Cashing Out Retirement Before Filing 

When you file for bankruptcy, all of your assets can be sold off to pay back creditors, except for your retirement funds. These assets can include a 401k, 403b, and other types of IRAs. But when you cash out your retirement and add it to your checking account, that fund is no longer protected and could be used to pay back creditors. 

If your finances are not holding up and you think you will have to file for bankruptcy, then you should avoid cashing out your retirement money.

Filing for a Lawsuit after Filing

You should also reconsider any lawsuits that you were thinking of filing after your bankruptcy proceedings begin. Along with being a big expense that you will likely have to take on more debt for, anything you win from the lawsuit could be added to the assets use to pay back creditors.Granted, if you have a good case for a lawsuit, using it to pay off your creditors can be a good solution.

Work with Experienced Debt Attorneys 

Filing for bankruptcy can be a lifeline to people who are struggling with debt, but there are some mistakes you could make that can make the proceedings more difficult. Along with giving the courts more power, it could also likely open you up to allegations of fraud. So, to be careful when you’re thinking of filing for bankruptcy, consider working with an experienced bankruptcy lawyer. Along with helping you avoid these mistakes, they can also help negotiate a better repayment plan. 

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