Filing for bankruptcy can provide much-needed financial relief, but certain actions taken beforehand can cause serious complications for your case. If you’re considering bankruptcy in New Jersey, it’s essential to avoid common mistakes that could lead to the dismissal of your case or even allegations of fraud. Here’s what not to do before filing.

1. Don’t Transfer or Hide Assets

It may be tempting to transfer money or property to a friend or relative to protect it, but doing so can be considered a fraudulent conveyance. Bankruptcy trustees carefully review your financial history, and any asset transfers made within a certain time period before filing could be undone or result in penalties.

2. Don’t Rack Up New Debt

Charging large purchases or taking out loans right before filing is a red flag. Creditors can claim you never intended to repay these debts, and such debts may not be discharged. Avoid using credit cards or taking cash advances within 90 days of filing.

3. Don’t Favor One Creditor Over Others

Paying back one creditor—such as a family member or friend—while neglecting others can be considered a “preferential payment.” The bankruptcy court may require the recipient to return that money so it can be distributed fairly among all creditors.

4. Don’t Drain Retirement Accounts

Retirement accounts such as 401(k)s and IRAs are typically protected during bankruptcy. Withdrawing funds to pay bills or creditors before filing could harm your financial security without reducing your debt in a meaningful way.

5. Don’t File Without Professional Guidance

Bankruptcy law is complex, and mistakes can cost you time, money, and protection. A knowledgeable bankruptcy attorney can help you determine the best time to file and which type of bankruptcy—Chapter 7 or Chapter 13—is right for you.

At Carroll Law Firm, P.C, we can provide legal assistance to the New Jersey public in navigating bankruptcy filings. Our team helps clients avoid these costly mistakes and pursue a fresh financial start with confidence.