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What Not to Do Before Chapter 13 | Avoid These Critical Mistakes
Critical Mistakes Defined: What Not to Do Before Chapter 13 If you’re considering Chapter 13 bankruptcy, understanding what not to
January 26, 2026
What Not to Do Before Chapter 13 | Avoid These Critical Mistakes
Critical Mistakes Defined: What Not to Do Before Chapter 13
If you’re considering Chapter 13 bankruptcy, understanding what not to do before filing is crucial for protecting your case. Many individuals unknowingly sabotage their debt relief efforts by making financial decisions that seem reasonable but raise red flags with bankruptcy trustees. Chapter 13 offers a structured repayment plan that allows you to keep your assets while addressing overwhelming debt, but certain pre-filing actions can derail this opportunity entirely. This guide outlines common pre-filing mistakes to avoid so you can better understand how certain actions may affect a Chapter 13 case and the court’s review of a proposed repayment plan.
Pre-Filing Actions: What Not to Do Before Chapter 13 Bankruptcy
Don’t Incur New Debt
Taking on new credit card charges, personal loans, or cash advances within 70-90 days before filing Chapter 13 creates presumptions of fraud. According to the U.S. Courts, trustees scrutinize recent debt because it suggests you never intended to repay these obligations. Luxury purchases exceeding $800 or cash advances over $1,100 within specific timeframes are particularly problematic and may be excluded from discharge protection.
Don’t Transfer or Hide Assets
Fraudulent transfers—giving away property, selling assets below market value, or “hiding” valuables with relatives—constitute bankruptcy fraud. The bankruptcy trustee examines transactions from the previous two years, and suspicious transfers can result in case dismissal, denial of discharge, or criminal prosecution. Your Chapter 13 plan must accurately reflect all assets you own, as transparency builds the foundation for court approval.
Don’t Drain Retirement Accounts
While retirement funds typically enjoy bankruptcy protection, withdrawing money before filing creates two problems: you lose protected assets and generate taxable income that inflates your disposable income calculation. This increases your required monthly Chapter 13 payment amount. The IRS guidelines confirm that retirement accounts remain exempt, making early withdrawal financially counterproductive when bankruptcy protection already shields these funds.
Financial Decisions: What Not to Do Before Chapter 13 Filing
Don’t Repay Loans to Friends or Family
Preferential payments—repaying certain creditors while ignoring others—trigger trustee clawback actions. If you repay $600 or more to family members within one year of filing, the trustee can demand that money back and redistribute it among all creditors. This embarrasses loved ones and damages relationships while providing you no benefit.
Don’t Make Large Purchases or Payments
Buying vehicles, expensive electronics, or making substantial payments on select debts appears suspicious. These actions suggest poor faith or attempts to manipulate your financial picture before filing. According to Federal Trade Commission guidance on debt management, bankruptcy courts expect honest disclosure of your financial situation, and irregular pre-filing transactions undermine your credibility with the trustee.
Don’t Ignore Income Changes
Failing to report income increases, bonuses, or new employment can constitute fraud. Your Chapter 13 plan bases payment calculations on accurate income disclosure. If the trustee discovers unreported income, they’ll demand plan modifications or seek dismissal. Similarly, don’t deliberately reduce work hours to manipulate your payment calculation—trustees recognize these tactics.
Legal Complications: What Not to Do Before Chapter 13 Bankruptcy Protection
Don’t File Incomplete or Inaccurate Paperwork
Omitting assets, understating income, or providing false information on bankruptcy schedules carries serious consequences. Even unintentional errors create delays, while intentional misrepresentations constitute perjury. Work closely with your bankruptcy attorney to ensure complete, accurate documentation that withstands trustee examination.
Don’t Continue Lawsuit Settlements Without Disclosure
If you’re pursuing personal injury claims, pending inheritances, or potential settlements, these must be disclosed. Receiving undisclosed funds after filing can result in case dismissal and loss of bankruptcy protections. Chapter 13 trustees have authority to claim portions of settlements received during your repayment plan period.
Don’t Pay Non-Dischargeable Debts While Ignoring Others
Focusing payments exclusively on student loans, recent taxes, or child support while defaulting on credit cards seems logical but creates preferential payment issues. Chapter 13 reorganizes all debts according to priority rules established by bankruptcy code. Let your attorney guide which obligations require pre-filing attention and which will be addressed through your plan.
Financial Freedom Strategy: What Not to Do Before Chapter 13 Success
Understanding what not to do before Chapter 13 bankruptcy helps reduce avoidable issues during the filing process. Avoid new debt, asset transfers, retirement withdrawals, preferential payments, large purchases, and documentation errors. These mistakes can complicate court review and trustee oversight of a proposed repayment plan. Chapter 13 provides powerful debt reorganization tools, but success requires honest disclosure and strategic pre-filing behavior that demonstrates good faith to the bankruptcy court.
What Not to Do Before Chapter 13 Consultation
Navigating what not to do before Chapter 13 requires experienced legal counsel. Every financial decision you make before filing can impact your case outcome, and mistakes often prove costly or irreversible. A free bankruptcy evaluation allows you to discuss your situation with a licensed attorney and review how pre-filing decisions may affect a potential Chapter 13 case.
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Frequently Asked Questions
1. What not to do before Chapter 13 if I need a car?
Avoid purchasing vehicles within 90 days of filing without attorney approval. Necessary transportation purchases require documentation showing legitimate need, reasonable pricing, and honest disclosure to the trustee. Wait until after filing when possible, or consult your attorney about timing and documentation requirements.
2. What not to do before Chapter 13 regarding credit card use?
Stop using credit cards immediately once you decide to file Chapter 13. Any charges within 70-90 days, especially for luxury items, may be challenged as fraudulent and excluded from your repayment plan or discharge.
3. What not to do before Chapter 13 with tax refunds?
Don’t spend anticipated tax refunds on non-essential items. Tax refunds may become part of your Chapter 13 plan, and the trustee will question frivolous spending of funds that should benefit creditors through your repayment plan.
4. What not to do before Chapter 13 if family offers to help?
Decline direct loan repayments from relatives within one year of filing. If family wants to help, they can assist with living expenses or attorney fees, but repaying loans creates preferential payment issues that trustees will reverse.
5. What not to do before Chapter 13 bankruptcy if I'm self-employed?
Maintain consistent business operations and accurate income records. Don’t artificially reduce income, make unusual business purchases, or transfer business assets. Self-employment requires extra documentation scrutiny, making honest financial practices essential for case approval.
Key Takeaways
- Avoid incurring new debt, especially credit card charges or cash advances, within 90 days before filing Chapter 13 to prevent fraud presumptions and discharge challenges.
- Never transfer assets, hide property, or sell valuables below market value before bankruptcy, as trustees examine two years of transactions and can reverse fraudulent transfers.
- Don’t withdraw retirement funds pre-filing since these accounts are protected in bankruptcy and withdrawals increase your disposable income calculation.
- Avoid preferential payments to family members or selective creditors, as trustees can claw back these payments and redistribute funds among all creditors.
- Don’t file incomplete or inaccurate paperwork, as documentation errors delay cases while intentional misrepresentations constitute fraud and can result in dismissal or criminal prosecution.
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