blog home Bankruptcy Filing for Bankruptcy – Common Mistakes

Filing for Bankruptcy – Common Mistakes

By Phoenix Bankruptcy Attorney on June 20, 2022

Paying off Debts to Family Members and Close Friends

When a person falls on hard times, family and close friends are often there to lean on. They may provide loans to see you through a rough patch. However, repayment of such loans leading up to filing bankruptcy can be disastrous. Paying back your family or friends for what you borrowed within a one-year period prior to filing your bankruptcy is considered an “avoidable transfer”. That means that once you file bankruptcy, the trustee can take back all the money you repaid during that one-year period directly from your family member or close friend. This could cause serious damage to your relationship with the family member or close friend. If you have already made payments, you have 2 options. The first option is to wait one year and one day after the transfer to file bankruptcy. The second option, is go ahead and file, and we work with the trustee, who may allow you to repay the funds to the trustee directly to avoid damaging the relationship with the friend or family member. Navigating these waters can be tricky. Consult with one our Phoenix bankruptcy attorneys to learn what your options are.

Tax Refunds

When you file bankruptcy, it is best to have already received and spent you tax refund. If you file bankruptcy before receiving and spending your refund, the trustee will seize the refund. You will want to avoid repaying debts with the refund, especially those to an insider as cautioned above. The better option is to convert the tax refund into property that is exempt or spend it on new services. Acceptable new services may include doctor visits, getting a tune-up for your car, getting repairs done on your home, etc. Before spending the refund, consult with one of our attorneys to learn what options are available to you.

Transfer of Property

You may have reviewed the Arizona bankruptcy exemptions and found that you have property that falls outside those protections. You may be tempted to just give it to your friend or relative to avoid losing it in bankruptcy. Or you may sell it to him or her for less than fair market value, like $1. DON’T DO IT! Such transfers are avoidable. This means that the trustee can undo that transfer and sell the item transferred. There are other ways to deal with non-exempt property before filing. It may involve a sale of the item for fair market value. Or you could consider filing chapter 13 bankruptcy, which allows you to keep the property while making payments on a percentage of your debts in a three- to five-year plan. One of our experienced attorneys can help you find a strategy that works for you.

Credit Usage Prior to Filing Bankruptcy

Taking out loans or using credit cards close to filing for bankruptcy can be problematic. You may have to pay back cash advances taken within 120 days prior to filing. You may have to pay back credit card charges or unsecured loans incurred 90 days prior to filing. Additionally, your unsecured creditors may be required to relinquish payments you made 90 days prior to filing.


Any inheritance that you receive up to 180 days after filing bankruptcy may be taken by the trustee. It may sound morbid, but finding out whether you may be receiving an inheritance soon is an important step in pre-bankruptcy planning.

Personal Injury or Other Claims

If you have a personal injury or other claim against someone where you expect compensation, you may want to wait to file until after you receive it. Filing before will result in the trustee being able to take your claims.

Business Interests

Business interests are not exempt in bankruptcy in Arizona. If you own significant business assets, you may want to consider a chapter 13 bankruptcy, which will allow you to retain the business interests while paying a percentage of your debts in a three- to five-year repayment plan.

These mistakes are common ones that our clients typically face. There may be others that you are wondering about. We are here to help. Schedule your free 30-minute consultation today.

Posted in: Bankruptcy

“Settled my debt quickly and for less than I could have imagined! I would definitely recommend Cy Hainey!”
- Chelsea