Bill Harrington
April 9, 2024

5 Common Mistakes During Bankruptcy

Bankruptcy provides individuals with overwhelming debt the ability to liquidate assets to pay creditors and get a fresh start.


If you are considering bankruptcy, beware of these common mistakes

Bankruptcy is a complex and challenging process, but it can be a fresh financial start for anyone dealing with overwhelming debt. That said, Bankruptcy is not to be taken lightly, as there are a myriad of potential pitfalls that may lurk. A skilled bankruptcy lawyer can help you avoid these mistakes and ensure you receive the relief you seek.

Here are some basic mistakes that you should avoid when filing for bankruptcy:

1. Transferring property for less than its fair market value before declaring Bankruptcy

One of the mistakes people make when filing for bankruptcy is trying to hide their assets so that the Trustee won’t try to sell the assets to pay the creditors. An example would be selling your home to your son for $1.00, or putting a bank account into someone else’s name. Do not do this. Hiding assets by transferring them to someone else could put you in trouble. It is considered fraudulent activity and may result in denial of the bankruptcy discharge at the very least, and possibly prison time, since Bankruptcy fraud is a crime.

Under Bankruptcy code alone, debtors must disclose any property transfer that occurred within two years before filing. However, the code also gives the Trustee the ability to utilize State fraudulent transfer laws to extend the “look back” period. In Pennsylvania, this can be as long as four years.

Upon discovering a fraudulent transfer, the bankruptcy trustee may recover the property or its value by distributing it to the debtor's creditors. The safest bet: Disclose everything before filing for bankruptcy. You may discuss with your bankruptcy lawyer to know how earlier transfers can affect your case.

2. Paying off Debt to Friends and Family Members Before Filing for Bankruptcy

Some debtors pay off loans to their friends and family members in the year before filing for bankruptcy. At the same time, they don't repay their other creditors, like credit cards or bank loans.

It might seem like you are a good and responsible person by paying your family & friends first. But bankruptcy law wants you to treat all your creditors fairly and equally, and that includes both your kind Uncle Larry as well as Bank of America.

If a bankruptcy is filed less than one year after such a payment, the law treats the payment as preferential treatment and allows the bankruptcy trustee get the money back from the family or friend who received the preferential payment. Expert advice from a bankruptcy lawyer is helpful in such cases.

Stressed nurse on the phone needing a bankruptcy lawyer

3. Not Disclosing All Debts

It is mandatory to disclose all the debts while filing for bankruptcy, even when the debt may be on a credit card that you want to keep open. Failing to disclose every debt can result in those debts not being discharged, which means you will still be responsible for paying them. This defeats the whole purpose of a bankruptcy filing!

Still, people are imperfect, and people simply forget about some of their unpaid accounts. Alternatively, any given account may be sold and re-sold so many times that it’s easy to lose track of who owns it. Not to worry. If you discover that you have inadvertently overlooked a debt, you can notify your bankruptcy attorney. They will take the necessary steps to correct the error.

4. Lacking Accurate Records

While filing for bankruptcy, keeping accurate records like financial documents, bills, and other related documents is necessary. The bankruptcy petition and the supporting documentation filed with it must paint a complete picture of your financial situation. This process starts by providing documentation of your income, expenses, debts, and assets to your bankruptcy attorney.

The initial stage of preparing a bankruptcy petition can be frustrating and arduous. It’s definitely a paper chase which can seem to be never-ending. However, being thorough in the days and weeks leading up to filing will benefit you later on by making the remainder of the process that much smoother.

5. Failing to Exempt Assets

When filing for bankruptcy, you may be able to protect certain assets, such as your home or vehicle, through bankruptcy exemptions. However, these exemptions are not automatic. You must explicitly indicate each and every asset you wish to protect and you must be sure that the value of the asset isn’t greater than what the particular exemption allows you to protect. If you slip up in either of these steps, the trustee can – and will – sell that asset and use the money to pay your creditors.

An experienced bankruptcy lawyer can review with you what exemptions are available to and will make sure that you properly claim them.


Bankruptcy is a complex process even when it is “simple.” We recommend you consult a knowledgeable bankruptcy lawyer. It saves time and money while ensuring your case's smooth sailing. You’ll thank yourself later.

Attorney William P. Harrington, Jr., ESQ.

Bill Harrington

Bill is an experienced attorney in estate planning and administration, credit card debt litigation, bankruptcy, and personal injury. He lives in Kinzers, PA, with his wife and three children.
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