Why the pre-filing period matters
The bankruptcy trustee does not just review your finances on the day you file. They look backward -- examining your transactions, transfers, and financial decisions for months or even years before filing. Under 11 U.S.C. § 548, the lookback for fraudulent transfers is 2 years. Under § 547, preferential payments can be clawed back from 90 days to 1 year.
Many people make well-intentioned mistakes during this period. They pay back family members who loaned them money. They transfer a car title to a spouse. They cash out retirement to try to stay current on bills. Every one of these actions can create serious problems in your bankruptcy case.
The seven deadly mistakes
Do Not Transfer Assets
Moving property to hide it from creditors is bankruptcy fraud. The trustee will find it, reverse it, and possibly deny your discharge.
Do Not Pay Family First
Paying back a family loan before filing is a preferential transfer. The trustee can sue your family member to get the money back.
Do Not Run Up Credit
Charging up credit cards when you know you are about to file creates a presumption of fraud. Those debts may survive bankruptcy.
Do Not Hide Income
Underreporting income on your petition is perjury. Trustees cross-check bank deposits, tax returns, and employer records.
Do Not Cash Out Retirement
Your 401(k) is fully protected in bankruptcy. Cashing it out to pay dischargeable debts is the most expensive mistake you can make.
Do Not Sell Property Below Value
Selling assets for less than fair market value is a constructive fraudulent transfer. The trustee can void it and recover the property.
Do Not Wait Too Long
Delaying bankruptcy while creditors garnish wages, levy accounts, and file liens often makes things worse, not better.
FAQ
Common questions about pre-filing dos and do-nots, timing, and how to avoid problems.
Bankruptcy fraud is a federal crime. Concealing assets, making false statements under oath, and fraudulent transfers can result in denial of discharge under 11 U.S.C. § 727 and criminal prosecution under 18 U.S.C. § 152 (up to 5 years in prison and $250,000 fine).
Legitimate pre-filing planning is legal. There is a difference between fraud and planning. Spending exempt funds on necessities, converting non-exempt property to exempt property in good faith, and timing your filing strategically are all permitted. The key is honesty and transparency. Consult an attorney for guidance.
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