One of the most powerful tools enshrined in the U.S. Constitution is the bankruptcy filing system. Filing bankruptcy is a great option if you’re facing debt beyond what you can pay. Many people find themselves saddled with debt caused by factors outside of there control, but bankruptcy is one way to take that control back.

If you think that filing for bankruptcy protection is right for you, the Brownsville bankruptcy attorneys of the Law Offices of Phillippe and Associates can help. However, the bankruptcy filing system is incredibly complex, and there are pitfalls waiting. Below, you can read about common mistakes made during the bankruptcy process— as well as how to avoid them yourself.

1. Don’t Rack Up New Debt

One common mistake made by those that are considering filing for bankruptcy is racking up additional debt. This could mean taking out loans or signing up for new credit cards after your filing.

In most cases, credit card debt can be discharged in a bankruptcy filing, and adding more charges to your credit card may seem suspicious. If you pick up debt in the 90 days before your filing, your creditor may accuse you of “presumptive” fraud by claiming you never intended to pay the debt, regardless of intention.

2. Don’t Repay Select Creditors

Another temptation you will need to avoid if you’re planning on filing bankruptcy is paying back select creditors. By “select creditors” we usually mean family members or friends who you owe money to. Paying creditors within 90 days of filing for bankruptcy may be considered a “preferential transfer” which can be “undone” during the bankruptcy process. If your bankruptcy trustee discovers such a payment, they may sue the person you paid to get the payment back.

3. Don’t Transfer Your Assets

There are lots of ways that people may try to “game the system” when filing for bankruptcy, but trying to hide assets is a crime, and most will get caught. One way people try to “hide” assets from their bankruptcy trustee is by transferring ownership before filing. However, if such a transfer is discovered, you could face criminal penalties. It’s extremely unlikely that the risk would be worth any rewards, so honesty–as in many avenues in life–is the best policy.

4. Don’t Forget to File Your Taxes

If you’re required to file taxes, be sure to do so before filing bankruptcy. If you haven’t filed within the two years before your filing, you may have a hard time with the process. A lack of this paperwork could make it nearly impossible to complete your bankruptcy forms. 

5. Don’t Cash Out Your Retirement Fund

Many bankruptcy filers cash out their retirement accounts to pay off debts only to find that they could have kept the fund through the bankruptcy process. It is a little known fact that most retirement funds can be protected through bankruptcy, so to find out whether or not your fund is exempt, consult with an experienced bankruptcy lawyer.

6. Don’t Pay Yourself a Bonus or Back Pay

If you plan on filing business bankruptcy, don’t pay yourself a bonus, repay any loans you made to the business, or take any other money out of the business within the year before filing. Under bankruptcy law, you are seen as an insider creditor, so any payments you make to yourself could be considered preferential and thus recoverable. This sort of action could also be considered bankruptcy fraud, which can result in jail time and definitely will mean a dismissal of your case.

7. Don’t Skip Hiring a Lawyer

While you may be able to file for bankruptcy without hiring a lawyer, seeking legal counsel before filing is the best way to protect yourself and your finances. Bankruptcy law can be incredibly complex, even in simple cases, so trying to file on your own could open you up to considerable risk. 

If you’re struggling with debt beyond what you can pay, bankruptcy may be a solution for your situation. The Brownsville bankruptcy attorneys of the Law Offices of Phillippe and Associates are dedicated to helping people find their way to financial freedom, and we would be proud to represent you or your business in bankruptcy court.


If filing for bankruptcy might help you find financial freedom, don’t hesitate to contact us for more information.


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