Avoid These Mistakes When Filing for Bankruptcy

Filing for bankruptcy can be a big step toward getting your finances back on track, but you need to carefully plan and make smart choices during the process. Bankruptcy is a legal way to get out of debt, but getting a fresh start with your money can quickly become hard if you're not careful. It can save you time, stress, and even money to know the most common mistakes people make and how to avoid them. Know these things before you take this important legal step.

1. Failing to Hire a Bankruptcy Attorney

When people try to file for bankruptcy on their own, they often make big mistakes. Legally, you can file pro se, which means "without a lawyer." However, bankruptcy law is very complicated and technical. A single mistake on your paperwork can cause your case to be delayed, denied, or even cause you to lose property that would have been secured.

A good bankruptcy lawyer will not only make sure that the forms are filled out properly, but they will also help you figure out whether Chapter 7 or Chapter 13 bankruptcy is best for you. They can also help you with permits, keep your assets safe, and deal with creditors.

2. Not Being Completely Honest About Finances

Some filers think they can improve their outcome by hiding assets, underreporting income, or failing to list all debts. This is a serious mistake that can result in the dismissal of your case or, in some instances, criminal fraud charges. The bankruptcy process is built on full financial transparency. The courts, trustees, and your bankruptcy attorney need a complete picture of your financial situation to help you obtain a favorable outcome.

Be honest about everything—your income, expenses, debts, assets, and financial history. Full disclosure is not only required, but it’s also in your best interest.

3. Racking Up Debt Right Before Filing

It's not uncommon for individuals to think they can take on more credit card debt or personal loans just before filing for bankruptcy, assuming those debts will be wiped clean. However, debts incurred shortly before filing—especially luxury purchases or cash advances—can be deemed non-dischargeable.

This means you could be stuck repaying those specific debts even after your bankruptcy case is completed. Courts look closely at recent financial activity, and if it appears you were intentionally abusing the system, it may hurt your case significantly.

4. Transferring Assets to Family or Friends

Transferring money, property, or other assets to friends or family members before filing may seem like a way to protect what you own—but it’s a red flag for the bankruptcy court. Such transfers are often viewed as fraudulent and can result in serious penalties or the reversal of the transfer altogether.

Talk to a bankruptcy lawyer instead of trying to "hide" assets. They can help you figure out what you can legally keep under exemption rules.

5. Using Retirement Funds to Pay Off Debt

It can be a bad idea to use your retirement savings to pay off personal or credit card debt. In most bankruptcy cases, retirement accounts like 401(k)s and IRAs are protected. That means you can usually keep your retirement savings even if you file.

Rather than emptying your retirement accounts to stay afloat, talk to a bankruptcy attorney about your options. Preserving your future financial security should be a top priority.

6. Waiting Too Long to File

Many people view bankruptcy as a last resort and wait until they’re drowning in debt before seeking help. While it’s understandable to want to avoid bankruptcy, waiting too long can make matters worse. You could lose your home to foreclosure, face lawsuits, or have wages garnished.

Early intervention gives you more options and can lead to a smoother, less stressful experience. A bankruptcy lawyer can look at your finances and help you figure out when it's best to file.

Final Thoughts

If you do it right, filing for bankruptcy can be a good idea for your money. By not making these common mistakes, you can improve your chances of success and get the most out of the fresh start bankruptcy is meant to give you. Working with an experienced bankruptcy lawyer will protect your rights, make sure your case is treated correctly, and set you up for a bright financial future.