Feb 27, 2023 •

Considering Chapter 7 Bankruptcy – Things to Avoid Before Filing

We all know that it is essential to follow the advice of your bankruptcy attorney during the process of filing Chapter 7 to ensure all the steps are completed correctly.  But did you know that it is also essential to take the right steps BEFORE you file for Chapter 7 bankruptcy?

Do Not Transfer Your Assets into Another Account

If you are worried about losing the money in your accounts during the bankruptcy process, you might think it to be a smart move to transfer those funds to a loved one’s account, remove your name from joint accounts, or transfer property into someone else’s account.  The answer is – no, it is not a smart move and doing so can have severe consequences.  

As part of the bankruptcy filing process, the court will be looking into your finances, and they WILL see the withdrawal or the transfer.  You will not be fooling anyone.  Worse, these types of actions could lead to charges of bankruptcy fraud.  Instead, work with your bankruptcy attorney to determine the best course of action to preserve as many of your assets as possible.  Your attorney can, and will, work to mark some of the property as exempt to help you to legally keep your assets.

Do Not Pay Some Creditors and Not Others

When reviewing your finances and before filing for Chapter 7 bankruptcy, you might find it tempting to pay down or off large amounts on certain debts, say a local small business or one where you are friendly with the owners, while ignoring others, say your credit cards or an unsecured loan provider.  This is not a wise decision.  The paying down or off of some debts while ignoring others, known as preferential transfers, can negatively affect your bankruptcy case and can result in a lawsuit.

Do Not Make Large Purchases on Your Credit Cards

Knowing that your credit card debt will likely be discharged through Chapter 7 bankruptcy, you might be tempted to think – shopping spree!  Resist this impulse.  It can wreck your bankruptcy case.  The court and creditors will be aware that you made the purchases without intending to pay for them.  However, this does not mean that you cannot continue to use your credit cards to make normal purchases – like groceries or everyday essentials.

Do Not Deposit Non-Regular Payments into Your Accounts

Did you received a monetary gift or award from your employer or a loved one shortly before filing for bankruptcy?  As it can complicate your Chapter 7 bankruptcy proceedings, you should not deposit these payments into your accounts until you have spoken with your bankruptcy attorney. 

Having this money in your account can impact your means test.  A means test is used to prove your income is below a certain threshold and you cannot afford to repay your debt.  If you are unable to pass a means test, you may need to file for Chapter 13 bankruptcy rather than a Chapter 7. 

Do Not File a Lawsuit Before Filing for Bankruptcy

If you are going to sue someone, you should avoid doing it before filing for Chapter 7 bankruptcy.  The court will consider all legal claims as assets in your bankruptcy estate.  Even if the case has not yet been resolved and you have not yet been awarded any money, the claims will be considered property of the bankruptcy estate.  If you have a pending lawsuit, make sure you consult your bankruptcy attorney before filing or suing another party.

Do Not File if You are Expecting Financial Payments

Are you expecting payments from work, like a bonus, or from other parties, but they are not yet in your accounts?  These will also become a part of your bankruptcy estate, and the court can take the payments to use towards the paying of your creditors.  If you are expecting future payments, make sure to talk with your bankruptcy attorney about how to handle the incoming money to protect it from your bankruptcy estate.

Contact an Attorney

If you are considering filing for Chapter 7 bankruptcy it is crucial to hire an experienced attorney. 

At The Alliance Legal Group, PLLC, our team of knowledgeable and experienced bankruptcy attorneys is ready to help you understand your options and fight for you as you push forward to a new and brighter financial future.

Ready to get started?  Reach out today.  Call us at (757) 923-4357 or contact us online to schedule a free, no-obligation consultation.  Do not let debt or fear ruin your life.


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