5 things to NOT do before filing for bankruptcy in Michigan

Updated: Mar 30

I meet with many people to discuss their bankruptcy options and while most of these cases will work out perfectly for the client, some clients will often believe they are “ready” to file for bankruptcy when they may have created some potential issues for their case. They often will tell me they’ve “taken care of a few things” before meeting with me. This is a huge mistake. Before filing for bankruptcy or taking any financial actions, it’s important to make sure you are doing appropriate bankruptcy planning with an attorney to make sure your case will not run into any issues.


The following are five of the biggest mistakes people make before filing for bankruptcy. Even if you’ve recently done one or more of these, make sure you meet with an attorney right away to discuss what impact, if any, it would have on a potential bankruptcy case. You may still qualify to file for bankruptcy in Michigan, EVEN if you have done one or more of these, so it’s important you discuss with your attorney.


1. Pay back family and friends – Often a person will try to “pay back” any friends or family before filing for bankruptcy. This is a huge mistake. Paying back an “insider”, such as a close friend or relative, will be considered a preferential payment to that insider and can open up that insider to being pursued by the bankruptcy Court. See my separate post about “preferential payments” for more.


2. Pay off credit cards or other debts – Many times I will meet with people who have attempted to pay off a credit card before filing for bankruptcy with the intention of “keeping” that card. This can be a huge waste of money as most cards will be closed automatically upon the filing of your case regardless of whether there is a balance on the card or not. Please don’t waste your money trying to do this. This can also open up those creditors to the preferential payment issue discussed above.


3. Cash out retirement accounts – Retirement accounts are completely exempt in bankruptcy cases, so long as the money is actually held in a qualified retirement account. The worst thing you can do before filing a bankruptcy case is to cash out a retirement account. Once the money is no longer in a retirement account, it is no longer exempt and can be subject to your creditors. Talk to an attorney early on when you first find yourself in financial difficulty. Don't cash out retirement accounts while trying to stay on top of debt. Speak to an attorney first to find out your best option.


4. Transfer titles – Many people will try to keep assets, such as a vehicle, “safe” by transferring the title or deed to another person or family member. This falls under the preferential payment issue described above and can open up the person to which you have transferred an asset to litigation against them.


5. Purchase new items or make new charges – Do not make new charges to your credit cards before filing for bankruptcy, especially luxury items or vacations. This behavior can open you up to potential fraud charges.


Even if you’ve done any of the above, ALWAYS meet with a bankruptcy attorney to discuss your individual situation to find out how these actions may affect a potential bankruptcy case. Call today to speak with an attorney. 269-381-4471



269-381-4471

121 W Cedar Street

Kalamazoo, MI 49007

All information provided on this site should not be construed as legal advice.   Always meet with an attorney to find out your legal options.

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