Top Mistakes People Make Before Filing for Bankruptcy

 Posted on February 11, 2026 in Bankruptcy

If you are considering bankruptcy in 2026, the actions you take before filing can affect your case. Many good people make innocent mistakes that can cause serious problems later. Knowing what not to do before filing can help you protect your fresh start.

At The Fealy Law Firm, PC, our firm focuses on helping people take care of their finances during difficult times. As a Board-Certified Consumer Bankruptcy Law attorney by The Texas Board of Legal Specialization, our Montgomery County bankruptcy attorney has helped thousands of people and businesses find debt relief. These are some of the most common mistakes people make before filing.

Avoid Making These Mistakes Before You File for Bankruptcy 

Using Credit Cards Before Bankruptcy 

Using credit cards right before filing bankruptcy is one of the most frequent mistakes people make. Many people think they should max out their cards since the debt will be discharged anyway. This thinking can destroy your bankruptcy case.

Under federal bankruptcy law at 11 U.S.C. Section 523, certain debts cannot be discharged if they are presumed fraudulent. If you charge many hundreds of dollars in luxury goods or services to a single creditor within 90 days before filing, the law automatically presumes you committed fraud.

Cash advances create even stricter rules. If you take significant cash advances from a single creditor within 70 days of filing, those advances are presumed fraudulent and will not be discharged. You will still owe that money even after your bankruptcy is complete.

Selling Property or Making Large Cash Withdrawals 

Selling property for less than its value before filing bankruptcy is a serious mistake. The bankruptcy trustee examines all financial transactions made within two years before your filing date. This is called the lookback period. In Texas and many other states, the trustee can review transactions going back even further under state law, sometimes up to four years.

If you sell your car to your brother for $500 when it is worth $5,000, the trustee will see this as a fraudulent transfer. The trustee can sue your brother to recover the car or its full value. The recovered property then becomes part of your bankruptcy estate and can be sold to pay your creditors.

Large cash withdrawals before filing also raise red flags. If you withdraw thousands of dollars from your bank account and cannot explain where the money went, the trustee will investigate. They assume you are trying to hide assets from creditors. You must account for how you spent every dollar.

Gifts and Transfers to Family Members

Giving gifts or transferring property to family members before bankruptcy is extremely risky. Transfers to family members or close friends are called transfers to insiders. The bankruptcy trustee examines these transfers very carefully because they often involve attempts to hide assets.

For regular creditors, the trustee looks back 90 days. For insider transfers to family members or business partners, the lookback period extends to one full year before filing. This means if you gave your daughter your car six months before filing, the trustee can reverse that transfer and take the car back to sell for your creditors. Even small gifts can cause problems if they add up.

Waiting to File Until After a Lawsuit Judgment 

Many people wait too long to file bankruptcy because they think being sued or having a judgment makes bankruptcy impossible. This is not true, but timing matters.

Filing bankruptcy after being sued is actually quite common. The automatic stay that goes into effect immediately when you file stops most lawsuits. The creditor cannot continue pursuing the case while your bankruptcy is pending. If the debt is dischargeable, the lawsuit goes away permanently when your bankruptcy is complete.

Filing after a judgment has already been entered is more complicated but still possible. The judgment becomes part of your bankruptcy case. If the underlying debt is dischargeable, the judgment is discharged too. However, if the creditor already garnished your wages or seized your bank account before you filed, getting that money back can be difficult.

The mistake is waiting too long. Some people drain their savings and retirement accounts trying to fight lawsuits they cannot win. By the time they file bankruptcy, they have lost money they could have protected with proper planning.

Contact a Fort Bend County, TX Bankruptcy Attorney Today

Our Montgomery County consumer bankruptcy lawyer has helped thousands of people and businesses find debt relief and start fresh. Contact The Fealy Law Firm, PC at 713-526-5220 to schedule a consultation and learn how we can help you avoid costly mistakes and achieve a successful bankruptcy.