Filing for bankruptcy can be a complex, confusing, and overwhelming endeavor. Without legal advice, you won’t know if your intended course of action is permissible by law, and even if it is, there may be undesirable legal implications down the road you’re not yet aware of. Below, we discuss three of the most common mistakes we see that can derail your bankruptcy filing process.  


Paying Down Certain Debts, Leaving Others Untouched

If you have substantial debt, chances are you have certain accounts you’d like to pay back before others. But, if you’re planning to file for bankruptcy, don’t make that mistake! When you file bankruptcy, whether Chapter 7 or Chapter 13, you’re essentially demonstrating to your creditors that your current debt exceeds your ability to pay it off.


However, when you attempt to pay down certain creditors while ignoring others, you’re treading down a potentially treacherous road because you’re practicing what is known as preferential payment. Since one of the primary goals of bankruptcy is to treat all creditors fairly, preferentially paying one creditor over another won’t bode well for your case.


When your case goes to court, there will be clear-cut evidence that you do indeed possess the funds to pay down some of your debt; yet, you’re attempting to claim that you cannot pay off what you owe—see how this situation could weaken your case? Even though you may have already paid down some of your debt, if you’re found guilty of preferential payment, your bankruptcy trustee has the power to reverse those payments and redistribute the funds across all of your creditors.


In the end, that debt you so desperately wanted to pay down will revert back to where it stood before you began making preferential payments.


Transferring and Concealing Assets

If you’ve been contemplating ways to conceal your assets so you can retain more of what you currently own after the bankruptcy process is over, think again. Transferring money or property out of your name and “gifting” it to friends or family is a major ‘no’ when you’re in the process of filing bankruptcy. In fact, concealing assets isn’t just deceitful; it’s downright illegal.


Sure, it might seem like a smart idea to keep your assets hidden, but there may be legal ramifications down the road that you haven’t yet considered, so don’t make that mistake! When your case goes to court, if the court learns of your “gifting,” you may be accused of perjury—and the consequences for such action include hefty fines, jail time, or both.


Transferring Outside Funds to Your Bank Account

During a bankruptcy filing, you must have a traceable source of routine income from your primary vocation. If you’re considering filing for bankruptcy and you own a business, it will behoove you to keep your personal and business accounts completely separate during the process.


Transferring money into your personal accounts during the filing process can be a red flag because it appears your current traceable income may be questionable. Any indication that your income is anything other than what you’ve demonstrated it to be may not bode well for you, so your best bet is to keep everything constant until the proceedings have concluded.


Filing for Bankruptcy? Ron Lundquist, Attorney at Law, Can Help

Are you considering filing for Chapter 7 or Chapter 13 bankruptcy? Don’t hesitate to contact Ron Lunquist, Attorney at Law. I specialize in personal bankruptcy, business bankruptcy, and foreclosure assistance and have proudly served thousands of Minneapolis and St. Paul residents over the past 20 years. When you place your bankruptcy case in my hands, you can rest assured you’ll receive compassionate, personalized guidance, and the tools you need to regain control of your financial situation. To learn more about your bankruptcy options, contact my office at 651-454-0007 to schedule your initial consultation. Or, feel free to reach out to me on my contact page.