Attorney at Debt Advisors Law Offices
Practice Areas: Chapter 7 Bankruptcy, Chapter 13 Bankruptcy, Stop Foreclosure
Filing bankruptcy can offer a fresh financial start, but the period right before filing is where most people unintentionally make costly mistakes. Seemingly small decisions during this time can raise questions, delay the case, or affect what debts are discharged. Many issues happen simply because individuals do not realize how closely their recent financial behavior is reviewed during the bankruptcy process.
This guide breaks down the most common mistakes people make before filing bankruptcy, why they matter, and how Wisconsin residents can manage the process more safely. If you are unsure whether a particular financial move could create problems later, consulting a Milwaukee Bankruptcy Lawyer can help you understand what to avoid before filing.
The months leading up to a bankruptcy filing are closely reviewed. Trustees examine bank statements, credit card activity, recent transfers, and overall financial patterns. Even small decisions can impact eligibility or raise questions.
Bankruptcy uses specific “look-back periods” that allow trustees to examine certain transactions:
These rules help ensure fairness and accuracy in the bankruptcy process. They also mean full transparency is essential when preparing to file. Bankruptcy petitions must include complete, accurate financial information. Any omissions or inconsistencies can delay or jeopardize the case.
Using credit cards or taking out loans right before bankruptcy can create significant problems. The law views certain types of spending as potentially done in bad faith. Under federal bankruptcy rules, some charges made shortly before filing can be treated as non-dischargeable, meaning they may not be eliminated.
Under 11 U.S.C. § 523(a)(2)(C), certain luxury purchases or cash advances made shortly before filing may be presumed non-dischargeable.
Risky choices include unnecessary purchases, cash advances, or using credit for expenses outside basic needs. These actions can lead to disputes or challenges from creditors.
Trying to “protect” property by putting it in someone else’s name is one of the most damaging mistakes people make before filing. Transfers to family or friends at low or no value often draw immediate attention from trustees.
Examples include:
Trustees have the power to reverse these transfers if they appear intended to hide assets or avoid creditor claims.
People often feel obligated to repay personal loans from relatives before filing for bankruptcy. Unfortunately, these payment insiders can be undone.
Bankruptcy rules treat families differently from standard creditors. Payments made to insiders within one year of filing may be considered preference payments. Trustees may seek repayment of those funds, which can create stress for everyone involved. Understanding this rule ahead of time helps prevent avoidable complications during the process.
Cashing out a retirement account is one of the costliest mistakes people make. Many Wisconsin exemptions protect retirement accounts, meaning these funds would have been safe during bankruptcy.
Once withdrawn, however, retirement savings lose their protected status and may be exposed to creditors. People also face tax penalties and long-term financial setbacks.
Many retirement accounts are protected under federal and Wisconsin exemption laws, meaning cashing them out before filing can create unnecessary financial harm.
Knowing which assets are protected can prevent serious setbacks.
Bankruptcy relies on accurate financial records. Sudden changes in income, spending, or deposits can complicate calculations for the means test or raise questions during trustee review.
Common issues include:
Keeping consistent records and avoiding major financial shifts helps create a smoother filing experience.
Bankruptcy paperwork must also be accurate. Missing creditors, unclear valuations, or incomplete income documentation can lead to delays, objections, or additional hearings.
Trustees compare information on the petition with bank statements, tax returns, and other financial documents, so accuracy is critical. Completing paperwork carefully reduces stress and keeps the case moving forward.
|
Action |
Safe or Risky |
| Essentials on credit | Safe |
| Non-essential spending | Risky |
| Selling at fair value | Safe |
| Transferring property | Risky |
| Leaving retirement funds intact | Safe |
| Cashing out retirement funds | Risky |
| Regular bill payments | Safe |
| Repaying family loans | Risky |
| Accurate paperwork | Safe |
| Incomplete paperwork | Risky |
Necessary spending may be acceptable, but unnecessary purchases or cash advances can be flagged and reviewed closely.
Transfers to family or friends before filing can complicate the case.
Repaying family loans may be viewed as insider preference payments and could be reversed later.
Exemption laws protect most retirement accounts, so leaving them “as is” is the safer choice.
Significant or unexpected income changes can affect eligibility calculations and may require additional documentation.
Trustees compare your forms with financial documents so that mistakes can delay or complicate your case.
The biggest mistakes people make before filing bankruptcy are often unintentional. Taking on new debt, transferring assets, repaying insiders, or cashing out protected funds can all create avoidable complications. Understanding these issues makes the process smoother and more predictable.
Debt Advisors Law Offices helps individuals across Wisconsin understand the steps involved in filing bankruptcy and avoid costly missteps. If you are considering bankruptcy and want guidance tailored to your situation, you can request a free consultation to discuss your options.
Debt Advisors Law Offices is a debt relief agency. We help people file for bankruptcy under the Bankruptcy Code.
Learn about bankruptcy protections, types of bankruptcy, how to get started, what to expect, and who to trust. Filing bankruptcy is the ONLY way to completely eliminate debt. If bankruptcy is right for you, it offers powerful protections that cannot be achieved through alternative solutions such as hardship relief, loans, or debt settlement.
