Mistakes to Avoid Before Filing Bankruptcy in Pennsylvania

Short answer: The most common bankruptcy mistakes before filing are paying some creditors ahead of others, moving or selling property, running up new charges, leaving creditors or assets off the paperwork, and missing court-imposed duties after filing. Several of these have specific statutory consequences, including recoverable payments, avoidable transfers, debts that may not be discharged, and in serious cases denial of discharge. An attorney can confirm how each rule applies to your facts before you change anything.

This guide is educational. Nothing here is a reason to act or hold off on your own; the rules turn on dates, amounts, and who received what. If timing is the pressure, also read how quickly you can file bankruptcy in Pennsylvania.

Paying one creditor ahead of others (preferences)

A well-meaning payment to a relative or a favored creditor can be undone. Under 11 U.S.C. § 547(b), a trustee may avoid a transfer of the debtor's property made to or for the benefit of a creditor, for an antecedent debt, while the debtor was insolvent, "on or within 90 days before the date of the filing of the petition," or between 90 days and one year before filing if the creditor was an insider, that lets the creditor receive more than it would in Chapter 7. A relative is the typical insider. In a consumer case there is a small-transfer defense: § 547(c)(8) protects a transfer if, "in a case filed by an individual debtor whose debts are primarily consumer debts, the aggregate value of all property that constitutes or is affected by such transfer is less than $600." Whether a particular repayment is recoverable, and from whom, depends on facts an attorney should review. The usual practical result is that the person who was repaid may be asked to return the money.

Selling, giving away, or retitling property (fraudulent transfers)

Under § 548(a)(1), a trustee may avoid a transfer made within two years before filing if the debtor made it "with actual intent to hinder, delay, or defraud" a creditor, or received "less than a reasonably equivalent value" while insolvent (or under other listed conditions). Putting a car or house in a relative's name, or selling an item for far less than it is worth, are the classic patterns. A trustee can also use 11 U.S.C. 544(b) together with state fraudulent-transfer law, such as the Pennsylvania Uniform Voidable Transactions Act (12 Pa.C.S. 5101 et seq.), which can reach back further than the two years in section 548. An attorney can confirm which look-back period applies to a specific transfer. The consequences can be worse than avoidance. Under § 727(a)(2), a discharge can be denied if the debtor, with intent to hinder, delay, or defraud a creditor or the trustee, "has transferred, removed, destroyed, mutilated, or concealed" property "within one year before the date of the filing of the petition," or estate property after filing. See our guide to Pennsylvania bankruptcy exemptions before assuming something is at risk; many ordinary assets may be protected, and an attorney can confirm which.

Taking cash advances or charging luxuries before filing

Section 523(a)(2)(A) excepts from discharge debts obtained by "false pretenses, a false representation, or actual fraud." Section 523(a)(2)(C) adds presumptions: consumer debts owed to a single creditor aggregating more than a stated amount "for luxury goods or services incurred by an individual debtor on or within 90 days before the order for relief" are presumed nondischargeable, and cash advances over a stated amount "under an open end credit plan obtained by an individual debtor on or within 70 days before the order for relief" are likewise presumed nondischargeable. Under the Judicial Conference's triennial adjustment (90 Fed. Reg. 8941, Feb. 4, 2025), the figures for cases filed on or after April 1, 2025 are $900 for luxury goods and $1,250 for cash advances. Dollar amounts in the Code are adjusted periodically, so an attorney can confirm the amounts that apply to your filing date. "Luxury goods or services" excludes goods or services reasonably necessary for the support or maintenance of the debtor or a dependent. A creditor generally has to ask the court for a ruling before a debt is held nondischargeable.

Borrowing to pay for bankruptcy or to catch up

Taking on a new loan, borrowing from a family member, or charging more to a card to pay a bankruptcy-related cost can create the very debts you are trying to resolve. Federal law also speaks to this: under § 526(a)(4), a debt relief agency such as a law firm shall not "advise an assisted person or prospective assisted person to incur more debt in contemplation of such person filing a case under this title," and the provision extends to advice to incur debt to pay for bankruptcy services. The Supreme Court has read "in contemplation of" to cover advice where the impelling reason is the anticipation of bankruptcy (Milavetz, Gallop & Milavetz, P.A. v. United States, 559 U.S. 229 (2010)). Whether a particular loan or charge is a problem depends on the facts, so ask an attorney before borrowing or charging anything.

Cashing out retirement accounts

Withdrawing from a retirement account to pay unsecured creditors turns money that may have been protected into cash that is not, and a withdrawal can carry tax consequences. Whether a given account is protected depends on the type of account and the exemption rules that apply in your case. Review Pennsylvania bankruptcy exemptions and ask an attorney before you withdraw anything.

Leaving out creditors, assets, or details

Every creditor and asset belongs on the paperwork, including debts to friends and family and accounts you consider small. Section 727(a)(4)(A) allows denial of discharge where the debtor knowingly and fraudulently "made a false oath or account" in or in connection with the case; section 727(a)(3) addresses concealing or failing to keep records from which the debtor's financial condition could be ascertained, and § 727(a)(5) addresses failing to explain satisfactorily a loss or deficiency of assets. At the creditors' meeting the debtor must "appear and submit to examination under oath" (§ 343). The paperwork duties of § 521(a)(1) include schedules, a statement of financial affairs, pay advices from the 60 days before filing, and income statements. Keeping statements, pay stubs, and tax returns in order is part of avoiding this problem. The Chapter 7 and Chapter 13 pages explain what each case requires.

Misjudging eligibility and the means test

Section 707(b)(1) allows a court, after notice and a hearing, to dismiss a Chapter 7 case filed by an individual whose debts are primarily consumer debts "if it finds that the granting of relief would be an abuse of the provisions of this chapter." Section 707(b)(2) creates a presumption of abuse based on current monthly income less allowed deductions, and § 707(b)(3) lets the court consider bad faith or the totality of the circumstances even when the presumption does not arise. Large spending before filing and unexplained changes in income can draw attention. Check where you stand with our means test page and the Chapter 13 vs. Chapter 7 comparison.

Skipping what comes after filing

• Credit counseling. Required before filing under § 109(h), subject to narrow exceptions. See credit counseling and debtor education.
• Documents. Rule 1007(c) sets 14 days for most schedules and statements, and § 521(i) provides for automatic dismissal if required information is missing at 45 days.
• The creditors' meeting. The debtor must appear and be examined under oath (§ 343), and a tax return must be provided to the trustee not later than 7 days before the date first set (§ 521(e)(2)(A)). See what to expect at a Chapter 13 341 meeting.
• Cooperation with the trustee. § 521(a)(3) and (a)(4) require cooperation and surrender of property of the estate and records relating to it.

Common fears and misconceptions

"I should pay back my family first." That is the insider-preference problem described above. "Anything I do not mention will not matter." Omissions are a ground for losing a discharge. "Stopping all payments to everyone is safest." Not necessarily; secured debts, support obligations, and utilities each have their own consequences, which is a reason to get individual advice. "My lawyer will handle everything." The petition is signed under penalty of perjury, so the facts have to come from you.

Notices you should receive from a debt relief agency

Under 11 U.S.C. § 527(a), a debt relief agency providing bankruptcy assistance must give the assisted person the written notice required by § 342(b)(1) and, not later than 3 business days after first offering to provide bankruptcy assistance services, a clear and conspicuous written notice described in § 527(a)(2). Section 527(b) adds a required statement. If you are working with anyone on a bankruptcy and never see these, ask.

What to expect at the consultation

An attorney will ask about the last two years of significant transactions: repayments to family, property sold or retitled, new charges and cash advances, retirement withdrawals, and large purchases. These questions are not accusations; they are how mistakes get identified and, where possible, handled before filing. Bring recent statements, pay stubs, and your most recent tax return. For help with the underlying debt problem see Pennsylvania debt relief, and for local filing questions see bankruptcy in Dauphin County or Cumberland County.

Call (717) 724-7503 or schedule a consultation to talk through your situation.

We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.

Sean P. Quinlan, Esq., Quinlan Law Group, Camp Hill and Harrisburg, Pennsylvania.

This page is general information about Pennsylvania and federal bankruptcy law, not legal advice for your situation, and reading it does not create an attorney-client relationship. This is attorney advertising. Deadlines and outcomes depend on your facts; talk to a licensed attorney before relying on anything here.