Chapter 7 Bankruptcy: 8 Pre-Filing Mistakes to Avoid

Man worrying about filing for bankruptcy.

Are you buried in bills and overwhelmed by debt? Chapter 7 Bankruptcy may provide welcome relief. However, bankruptcy rules can be complicated, and knowing how to prepare is essential. Contact a Georgia bankruptcy attorney early to navigate the process and get a fresh financial start. Meanwhile, avoid these eight common pre-filing mistakes that may sabotage your bankruptcy success:

8 Pre-Filing Mistakes Everyone Should Avoid

Mistake #1 – Continuing to Use Credit Cards

Unless absolutely essential for the necessities of life (food/housing/utilities), stop making new charges to credit cards. Debit cards are not credit cards and may continue to be used.

Mistake #2 – Unusual Payments to Creditors

Pay bills as you would normally, and avoid special payments. Paying select creditors, paying creditors in full, or making large payments may be seen as preferential transfers and later lead to clawback lawsuits. In a clawback lawsuit, the bankruptcy court seeks financial reimbursement from the entity or person paid.

Mistake #3 – Ignoring Collections Notices/Actions

Alert your bankruptcy lawyer to collections notices/actions immediately. Once a creditor receives a judgment, it can collect on the debt through wage garnishment or directly from your bank account. Your bankruptcy attorney can help protect against additional actions by creditors.

Mistake #4 – Transferring Money or Property

Transferring money, property, or assets out of your name will not protect them from the bankruptcy court and may be considered an attempt to conceal assets and commit fraud.

Mistake #5 – Making Unusual Deposits 

Do not deposit funds into your account that cannot be verified as income, such as deposits for friends, family, or others. Co-mingling business transactions with personal accounts should also be avoided.

Mistake #6 – Taking Action on Future Funds

Any anticipated funds, even if not yet received, are owned by the bankruptcy estate. This includes bonuses on earned income, tax refunds due, pending lawsuit awards, and inheritances. It is essential you consult your bankruptcy attorney for advice regarding potential future funds you expect to receive.  

Mistake #7 – Failing to File Income Tax Returns

Income tax returns must be submitted with filing and will be reviewed by the bankruptcy court for important information regarding income earnings and asset ownership. The inability to produce tax returns could result in the dismissal of your bankruptcy filing.

Mistake #8 – Filing at the Wrong Time

Different types of financial transactions made within specific time frames prior to your filing date may be reviewed by the bankruptcy court. You may have unknowingly engaged in a transaction that could be ill-regarded by the bankruptcy court. Review your pre-filing transaction history with your bankruptcy attorney and time your filing appropriately to avoid possible problems.

Before You File, Contact an Experienced Bankruptcy Attorney 

The burden of financial debt is heavy enough on its own, without the added stress of trying to understand the many rules and regulations associated with Chapter 7 Bankruptcy debt relief. An experienced bankruptcy lawyer will advise you about your options, prepare your filing, and work to minimize potential challenges by creditors or the bankruptcy trustee. Schedule a consult with an experienced Georgia bankruptcy attorney today for a free consultation to best prepare for and avoid costly mistakes that could complicate or jeopardize your filing.   

Posted in: Bankruptcy