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Filing Chapter 7 bankruptcy is a major financial decision, and certain actions taken before filing can create unnecessary complications. Some mistakes can delay the case, draw additional scrutiny from the trustee, or affect the availability of exemptions. Others may even lead to allegations of fraud if they appear to be attempts to hide assets or manipulate the system. Understanding the most common pre-filing pitfalls helps individuals avoid preventable problems and approach the process with clarity. This guide outlines the mistakes people often make before filing—and why they matter.

Transferring Property to Friends or Family

One of the most common mistakes is transferring property to someone else in an attempt to protect it. This might include giving a car to a relative, moving money into someone else’s account, or adding another person to a bank account. These transfers may look suspicious to the trustee, especially if they occur shortly before filing.

Bankruptcy law requires full transparency, and the trustee reviews financial activity carefully. Transfers made with the intent to hide or shield assets can be reversed, and in some cases, they may lead to legal consequences. Even innocent transfers can delay the case if they require explanation or documentation. It is always best to leave assets where they are until after the case is reviewed.

Paying Back Family or Friends Before Filing

Another mistake involves repaying debts owed to family members or close friends before filing. Bankruptcy law classifies these payments as insider payments and treats them differently from payments made to ordinary creditors. If someone repays a family loan shortly before filing, the trustee may view this as giving unfair preference to one creditor over others.

The trustee has the authority to recover these payments and redistribute them to creditors according to bankruptcy rules. To avoid complications, it is better to delay repaying family or friends until after the bankruptcy process is completed.

Running Up Credit Cards or Taking Out New Loans

Using credit cards shortly before filing can create significant complications. Large purchases or cash advances taken just before filing may appear fraudulent, especially if there is no reasonable expectation of repayment. Creditors may challenge the discharge of these debts, leading to potential legal disputes or delays.

Some people mistakenly believe they should use credit cards to stock up on necessities before filing. However, this can trigger closer scrutiny from the trustee and raise questions about intent. It is better to avoid using credit cards altogether once bankruptcy is being considered.

Selling Property Below Market Value

Selling property for less than its actual worth can raise concerns during bankruptcy. If the filer sells a vehicle, electronics, or other items for significantly less than fair market value, the trustee may suspect an attempt to hide assets. The trustee may investigate the sale, request documentation, or reverse the transaction if necessary.

If property needs to be sold, it should be done fairly and transparently, with accurate records and market-consistent pricing.

Making Unusual or Large Cash Withdrawals

Large cash withdrawals from bank accounts can trigger trustee questions. Cash transactions are difficult to trace, and trustees may need detailed explanations about where the money went. If the funds cannot be accounted for, the trustee may assume they were used for improper purposes.

If large cash withdrawals are unavoidable, it is important to keep receipts and detailed records. Otherwise, withdrawals may complicate the case unnecessarily.

Failing to Disclose All Assets or Income

Some people hesitate to list every asset or income source because they fear losing property or disqualification. However, failing to disclose complete information is one of the most serious mistakes a filer can make. Bankruptcy requires full transparency, and the trustee has tools to uncover hidden income or property.

Omissions—whether intentional or accidental—can lead to:

• delays
• requests for amendments
• objections
• denial of discharge
• legal consequences

Listing everything clearly from the beginning ensures the process moves forward efficiently.

Withdrawing Retirement Funds to Pay Creditors

Retirement accounts are often protected under bankruptcy exemptions. Withdrawing funds before filing not only reduces the protection but also creates taxable income that may complicate eligibility. Some individuals empty retirement accounts to keep up with bills or repay creditors, but this can worsen their financial situation and reduce the benefits of bankruptcy.

It is usually better to preserve retirement funds and allow bankruptcy exemptions to protect them.

Ignoring Required Credit Counseling

Before filing, the individual must complete a required credit counseling session from an approved agency. Failing to do this before filing can result in case dismissal. The course is straightforward and focuses on reviewing the filer’s financial situation. It can be completed online or by phone and usually takes less than an hour.

Completing this requirement early ensures it does not become a barrier to filing.

Waiting Too Long to Consider Filing

Some individuals wait until creditors have sued them, garnished their wages, or filed liens against their property before considering bankruptcy. While bankruptcy can still provide relief, delaying the decision may limit options. Wage garnishments can take a portion of income, and liens may need additional steps to resolve.

Addressing financial trouble early makes it easier to approach bankruptcy in a planned and strategic way rather than reacting to crises.

Choosing the Wrong Time to File

Timing matters. The income reported for the means test is based on the six months prior to filing. If income has recently decreased, waiting a month or two may help qualify for Chapter 7. If income has increased but is likely to decrease again, delaying the filing may be beneficial.

Understanding how timing affects eligibility can make a meaningful difference in the outcome of the case.

Relying on Advice from Unqualified Sources

Friends, family, and online forums often provide incomplete or inaccurate information about bankruptcy. Relying on unverified advice can lead to mistakes, misunderstandings, or incorrect assumptions about the process. Bankruptcy is governed by federal law, but specific procedures vary by district.

Using reliable, educational resources helps ensure that decisions are based on accurate and up-to-date information.

Not Gathering Documents Early

Delays often occur when filers cannot provide requested documents promptly. Starting to gather records early—even before officially deciding to file—helps streamline the process. Being organized can reduce stress and prevent setbacks.

Final Thoughts on Pre-Filing Mistakes

Most pre-filing mistakes arise from good intentions but misunderstandings. People want to protect assets, repay loved ones, or stay afloat temporarily, but these actions can complicate the bankruptcy process. By understanding what to avoid, individuals can approach Chapter 7 with greater clarity and a smoother path ahead.