What Not to Do Before Filing Chapter 7 Bankruptcy

The months before you file Chapter 7 matter as much as the filing itself. A bankruptcy trustee will comb through your recent financial history, and certain moves — however reasonable they felt at the time — can get your case dismissed, strip specific debts of their discharge, or, in the worst cases, bring criminal charges. Here is what not to do before filing Chapter 7 bankruptcy, and why each item lands you in trouble.

Don’t Inflate Your Income in the Six Months Before Filing

Eligibility for Chapter 7 turns on the means test, which looks at your household income over the six months before you file and compares it to the median for a household your size in your state. Income above the median pushes you into a second calculation that can block Chapter 7 entirely and force you into Chapter 13 instead.¹

That means a large bonus, a cashed-out stock grant, or any other one-time bump in the six months before filing gets counted against you as if it were regular income. If you have any control over the timing of that kind of payment, or over when you file, talk to a bankruptcy attorney before you do anything. Disabled veterans whose debts arose primarily during active duty are exempt from the means test altogether.¹

Don’t Transfer, Sell Cheap, or Hide Property

Giving property to a relative, selling it for a fraction of what it’s worth, or moving it into someone else’s name is one of the fastest ways to destroy your case. The trustee can reverse transfers made within two years before filing if they were made to put assets beyond creditors’ reach, or if you got less than fair value while you were insolvent.²

Two years is just the federal floor. Using state fraudulent transfer laws, the trustee can typically look back four to six years, and when a creditor like the IRS is involved, the window can stretch further.³ The recovered property gets added to the estate and distributed to creditors.

The pain doesn’t stop at losing the asset. If you transferred, concealed, or destroyed property within one year before filing with intent to cheat creditors, the court can deny your discharge outright.⁴ Bankruptcy fraud carries up to five years in federal prison and fines up to $250,000.⁵ If you’re worried about a specific asset, check whether a state or federal exemption already protects it before moving anything.

Don’t Run Up Credit Cards or Take Cash Advances

New borrowing right before a filing looks like fraud, and the code treats it that way. Two specific presumptions kick in:

Consumer debts to a single creditor for luxury goods or services totaling more than $900, incurred within 90 days before filing, are presumed nondischargeable.⁶
Cash advances totaling more than $1,250 obtained within 70 days before filing carry the same presumption.⁶

Presumed nondischargeable means the debt sticks unless you can convince the court you actually intended to repay it when you borrowed. That’s a hard sell when you filed weeks later. Groceries and medical bills aren’t luxury goods, so ordinary necessities during this window carry less risk. A new television, a vacation, or a shopping spree almost certainly stays on your tab after discharge.⁷

Don’t Pay Off Family or Favored Creditors

Paying back a parent or a close friend before filing feels like the honorable thing to do. In bankruptcy, it’s called a preferential payment, and the trustee can claw the money back from whoever received it. All unsecured creditors of the same priority are supposed to be treated roughly equally, so paying one ahead of the others isn’t allowed.

The look-back is 90 days before filing for ordinary creditors and a full year for insiders: relatives, business partners, or anyone with a close personal or financial relationship.⁸ The trustee can sue the recipient directly, which often blindsides a family member who thought a debt was simply being repaid.

Routine payments on ongoing obligations are treated differently. Keeping up with your electric bill, your car loan, or your mortgage on the normal schedule is protected as ordinary course of business. Consistency is the key. What draws scrutiny is a lump-sum payoff, an unusually large payment, or writing a check to someone you wouldn’t normally prioritize.

Don’t Drain Your Retirement Accounts

This may be the single most expensive mistake people make before filing. Retirement accounts are already protected. ERISA-qualified plans like 401(k)s get unlimited protection in bankruptcy, and traditional and Roth IRAs are protected up to roughly $1,711,975, with rollover money from an employer plan not counting toward that cap.⁹

Withdrawing from those accounts to pay debts that would have been wiped out anyway converts protected money into unprotected cash, then hands it to creditors who were going to get nothing. You also owe income tax on the withdrawal, plus a 10% early withdrawal penalty if you’re under 59½. The debts you were trying to cover could have been discharged for free. Leave the retirement accounts alone until you’ve talked to an attorney.

Don’t Spend a Tax Refund the Wrong Way

A tax refund you’re owed at the time of filing is an asset of the estate. If you receive a big refund shortly before filing and blow it on luxury purchases or hand pieces of it to family, the trustee will treat that as a preferential payment or improper transfer.

Genuine necessities are safer: rent or mortgage payments, utilities, groceries, medical bills, car insurance, or the direct costs of the bankruptcy itself, such as attorney fees and the court filing fee. Keep receipts so you can show where the money went if the trustee asks.

Don’t Lie or Leave Things Off Your Schedules

Every bankruptcy petition includes schedules of your assets, income, expenses, debts, and recent transactions. You sign them under penalty of perjury. Concealing property, making a false statement under oath, or destroying financial records is a federal crime, each offense carrying up to five years in prison and fines up to $250,000.¹⁰⁵

The civil consequences alone are enough of a reason to be complete and accurate. The court can deny your discharge entirely for a false oath, a concealed asset, or an unexplained loss of property.⁴ A denied discharge is the worst outcome available: you exposed every part of your financial life, potentially lost property, and still owe every dollar. Trustees know how to spot inconsistencies between schedules, tax returns, and bank statements.

Don’t File Before Your Waiting Period Is Up

If you’ve had a bankruptcy discharge before, strict waiting periods apply before a new Chapter 7 discharge is available:

After a previous Chapter 7, you must wait eight years from the filing date (not the discharge date) of the earlier case.⁴
After a previous Chapter 13, you must wait six years from the filing date of the earlier case, unless you paid 100% of unsecured claims in the Chapter 13 plan, or at least 70% while acting in good faith and making your best effort.¹¹

Filing before those periods run doesn’t stop you from opening a case; it stops the case from producing a discharge. You go through the process, expose your finances, potentially lose non-exempt property, and eliminate nothing. People get this wrong more often than you’d expect, usually by confusing filing dates with discharge dates or mixing up rules across chapters. Check your timeline before you file.

Don’t Skip the Required Counseling Courses

Federal law requires two separate courses, and missing either one derails your case.

The first is a credit counseling session from an approved nonprofit, completed within 180 days before you file. Without the certificate, you can’t file. A narrow emergency exception allows filing without it if you tried to get counseling and couldn’t within seven days, but you still have to complete the course within 30 days after filing, with a possible 15-day extension for good cause.¹²

The second is a debtor education course, taken after filing but before discharge. Skip it and the court won’t grant your discharge, which means you did all the work of filing for nothing.¹³ Both courses typically run between $5 and $50, with fee waivers available if your income falls below 150% of the federal poverty level. Most approved agencies offer online or phone options that take about an hour.

1
Office of the Law Revision Counsel. 11 U.S. Code 707 – Dismissal of a Case or Conversion
2
Office of the Law Revision Counsel. 11 U.S. Code 548 – Fraudulent Transfers and Obligations
3
Harvard Law School Bankruptcy Roundtable. Another Court Adopts Majority View in Approving Bankruptcy Trustees Use of Tax Code Look-Back Period in Avoidance Actions
4
Office of the Law Revision Counsel. 11 U.S. Code 727 – Discharge
5
Legal Information Institute. Bankruptcy Fraud
6
Federal Register. Adjustment of Certain Dollar Amounts Applicable to Bankruptcy Cases
7
Office of the Law Revision Counsel. 11 U.S. Code 523 – Exceptions to Discharge
8
Office of the Law Revision Counsel. 11 U.S. Code 547 – Preferences
9
Office of the Law Revision Counsel. 11 U.S. Code 522 – Exemptions
10
Office of the Law Revision Counsel. 18 U.S. Code 152 – Concealment of Assets, False Oaths and Claims, Bribery
11
United States Courts. Discharge in Bankruptcy – Bankruptcy Basics
12
Office of the Law Revision Counsel. 11 U.S. Code 109 – Who May Be a Debtor
13
United States Courts. Credit Counseling and Debtor Education Courses