Common Mistakes to Avoid Before Filing Bankruptcy in Alabama
Filing for bankruptcy can deliver a fresh start, but missteps in the weeks and months before you file can jeopardize your case, delay relief, or even lead to dismissal. Alabama filers often face unique timing and documentation challenges, especially when income, taxes, or assets have recently changed. Understanding what not to do is as important as understanding the forms you must complete. If you are unsure about the next steps, a brief consultation with Loris Bankruptcy Law Firm can help you avoid costly errors.
What are the mistakes that you should avoid before filing for bankruptcy?
Do not run up credit cards or take cash advances right before filing.
The Bankruptcy Code presumes that recent “luxury” charges and cash advances within 75 days are not dischargeable, which can leave you owing that debt after your case ends. Specifically, Section 523(a)(2)(C) creates a presumption against discharge for certain recent consumer purchases and advances, and courts treat such timing as potential evidence of fraud.
Avoid transferring property to friends or family, selling assets for less than they are worth, or moving money to “hide” it.
Trustees can unwind transfers made with the intent to hinder or defraud creditors within two years of filing and they can also claw back preferential payments to creditors made shortly before the petition date, generally within ninety days for ordinary creditors and up to two years for family. These rules exist under the Code’s fraudulent transfer and preference provisions and can force the recipient to return the asset or money to the estate.
Do not make large, selective repayments to one creditor while ignoring others
Preference law treats such payments as unfair and allows a trustee to recover them for equal distribution among creditors. In fact, the Code presumes you were insolvent during the ninety days before filing, which strengthens preference recovery.
Do not drain protected retirement accounts to pay dischargeable debts
Most ERISA-qualified plans are excluded from the bankruptcy estate or enjoy robust exemptions, and even IRAS have substantial federal protection in bankruptcy. Tapping these funds can convert protected assets into cash that might be reachable by creditors.
Do not skip the required pre-filing credit counseling or the tax-return obligations that follow
You must complete credit counseling from an approved provider within 180 days before filing, and Chapter 13 filers must supply recent tax returns to the trustee, typically at least seven days before the meeting of creditors. This is important because missing these steps can result in delays or dismissal.
Avoid debt-settlement schemes as a last-minute fix
Many programs instruct consumers to stop paying creditors while collecting hefty fees, which can lead to deeper delinquency, added penalties, and intensified collection activity, exactly the opposite of what you need on the eve of a bankruptcy. Federal consumer-protection authorities have repeatedly warned about these risks and taken enforcement actions when companies charged illegal fees.
Be transparent and thorough
Omitting assets, income, or recent financial activity can trigger objections, loss of discharge, or allegations of fraud. Bring pay stubs, bank statements, and a full debt list to your initial meeting so your counsel can screen for timing problems, identify potential preferences or avoidable transfers, and advise whether Chapter 7 or Chapter 13 better aligns with your goals. If you are weighing foreclosure or tax issues, it is especially valuable to speak with a bankruptcy lawyer in Mobile & Selma, AL who understands local trustee practices and court expectations.
Wrapping Up
A successful bankruptcy begins before you file: avoid new debt, do not move or “park” assets, protect retirement savings, complete counseling, and gather tax returns and income records early. These steps reduce objections, preserve exemptions, and protect your discharge. Loris Bankruptcy Law Firm will provide you with a short, informative discussion about the next steps that fit your circumstances.
Contact us today to schedule a free consultation.