Common mistakes made by bankruptcy filers

Filing bankruptcy can be a complicated process, especially if you are trying to file on your own without legal help. Recently on our bankruptcy forum a user asked, “What are the most common mistakes made by bankruptcy filers and what can I do to avoid them?”

Common mistakes made in bankruptcy


Before deciding whether to file bankruptcy or whether or not it is the best decision for you it is important to gather information about the process, review bankruptcy laws in your state, determine whether you can file Chapter 7 or Chapter 13 bankruptcy, and talk to a bankruptcy lawyer.

Taking these steps will help you avoid some of the most common bankruptcy mistakes. With that said, however, there are common mistakes that many debtors make that should be avoided. Below we will review several of the most common mistakes.

  1. Repaying creditors or relatives prior to filing bankruptcy.

Although filing bankruptcy may allow you to discharge certain unsecured debts, bankruptcy laws have been established that ensure all creditors are treated fairly, even the ones who may not be paid through bankruptcy.

With this in mind, if you decide to repay certain creditors or transfer property to certain creditors prior to filing bankruptcy this can be considered a “preferential payment.” What happens if you make a preferential payment or transfer? It is likely the trustee assigned to your bankruptcy case will set aside or cancel certain payments or property transfers. The trustee action is allowed because the bankruptcy court does not want one creditor to receive more property or assets than other creditors.

So how do you know if you have made a preferential payment? The law states that a preferential payment includes a payment to a creditor for a debt you owed when you were insolvent, and the payment was made within 90 days of your bankruptcy filing or within one year if the payment is made to a family member or “inside creditor.”

  1. Failing to report all of your creditors.

It is not uncommon for debtors to ask if certain creditors can be left off their bankruptcy schedules. Bankruptcy laws require all creditors to be listed, regardless of whether or not you are seeking to have the debt discharged.

  1. Hiding assets from the bankruptcy court.

Who doesn’t want to hide certain assets hoping that the trustee won’t liquidate them? Unfortunately, if you file bankruptcy is it illegal to hide assets. IRS auditors, the trustee, and the FBI fraud division are busy investigating hundreds of cases each year where filers are attempting to hide assets from the federal government. Bankruptcy fraud is very serious, and those who attempt to hide assets may be charged with a felony.

  1. Failing to review all of your financial options.

Many filers fail to consider whether filing bankruptcy is there best financial option for relieving their financial crisis. Before filing bankruptcy it is important to consider all of your options: selling valuable property and possessions, talking to family members about a loan, transferring credit debt to a lower interest credit card, or refinancing your home. Bankruptcy is a serious decision and should not be made without first considering all of your choices.

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Beth L. is a content writer for Better Bankruptcy. Good content and information is one of many methods we utilize to bring you the answers you need.