5 Things You Should Not Do When Filing for Bankruptcy: A Creditor’s Perspective
For over 25 years, I worked as a debtor’s attorney, filing over 4,000 consumer bankruptcies under Chapters 7 and 13. I helped individuals navigate financial hardship and legally eliminate or restructure their debts. However, my focus has now shifted—I now represent creditors seeking to recover what they are owed from Texas debtors.
When debtors file for bankruptcy, creditors often face significant financial losses. While bankruptcy laws provide protection for debtors, they also include safeguards to prevent fraud and abuse, ensuring that creditors still have rights in the process. Understanding what debtors should not do when filing for bankruptcy can help creditors identify red flags and take legal action when necessary.
1. Never Lie in Bankruptcy Proceedings
One of the biggest mistakes a debtor can make is lying on bankruptcy paperwork. Whether it’s concealing assets, underreporting income, or providing false financial information, bankruptcy fraud is a federal offense.
Why This Matters to Creditors:
- Creditors can challenge the bankruptcy case if they suspect fraud.
- Hidden assets can be uncovered, ensuring creditors get their fair share.
- Debtors who commit fraud may have their bankruptcy discharge denied, allowing creditors to continue collection efforts.
If a creditor believes a debtor is hiding income, assets, or debts, they can request a financial investigation through the bankruptcy court.
2. Never Transfer Assets Before Filing for Bankruptcy
Some debtors attempt to transfer assets to family or friends before filing for bankruptcy to avoid having them liquidated. However, these transfers can be reversed by the court through a clawback action, and the debtor may lose their bankruptcy protection altogether.
Why This Matters to Creditors:
- Creditors can recover assets that were fraudulently transferred.
- Transfers within a certain timeframe before bankruptcy can be considered preferential or fraudulent, allowing creditors to challenge them.
- A debtor caught hiding assets may be forced to pay back creditors in full.
If a creditor suspects fraudulent asset transfers, they can petition the court to investigate and reclaim the assets.
3. Never File for Bankruptcy Without Legal Guidance
Some debtors believe they can handle bankruptcy on their own without an attorney. This often results in costly mistakes, missed deadlines, or failing to properly protect certain assets.
Why This Matters to Creditors:
- Improper filings can lead to case dismissals, allowing creditors to continue collection efforts.
- Debtors who make errors may fail to discharge certain debts, leaving them legally responsible for repayment.
- Creditors can challenge improperly filed bankruptcy petitions, ensuring they receive the highest possible repayment.
4. Never Sign Bankruptcy Paperwork Without Reviewing It Carefully
Bankruptcy paperwork is legally binding, and any inaccuracies or omissions can lead to serious consequences for the debtor. Some debtors rush through the paperwork, not realizing they are agreeing to certain terms that may not be in their best interest.
Why This Matters to Creditors:
- Creditors can dispute inaccurate financial disclosures that may reduce their claim.
- Incorrect information can result in the debtor’s bankruptcy being dismissed, reopening the door for debt collection.
- Debtors who fail to list a debt properly may still be legally obligated to pay it.
5. Never Assume All Debts Will Be Discharged
Many debtors believe that bankruptcy erases all debts, but this is not true. Certain financial obligations cannot be discharged, including:
- Child support and alimony
- Most student loans
- Tax debts
- Court-ordered fines and penalties
Why This Matters to Creditors:
- Certain debts will survive bankruptcy, allowing creditors to continue collection efforts.
- Secured creditors can still repossess collateral, even if the underlying debt is discharged.
- Creditors can object to certain debts being discharged, particularly if they were obtained through fraud or misrepresentation.
Final Thoughts: Protecting Creditors’ Rights in Bankruptcy Cases
While bankruptcy provides debtors with legal protections, it also includes important safeguards for creditors. By understanding common debtor mistakes, creditors can:
- Challenge fraudulent or improper bankruptcy filings.
- Recover assets that were improperly transferred.
- Ensure debts that should not be discharged remain legally enforceable.
If you are a creditor concerned about recovering debts from a Texas debtor in bankruptcy, expert legal guidance can help protect your financial interests and maximize recovery.
For more information on creditor rights and debt collection strategies, visit our website or call (713) 974-1151 to schedule a consultation.
