Timing Your Bankruptcy Filing: When to Delay or Avoid Bankruptcy Altogether

Not sure whether to file your bankruptcy case? These tips will help.

By , Attorney · University of the Pacific McGeorge School of Law

Timing your bankruptcy case is essential because what you do before filing for bankruptcy could derail your case. If you've done any of these things, it might be best to delay or even avoid filing altogether:

  • started a mortgage modification
  • purchased luxury goods or services on credit
  • hidden cash or other assets
  • sold money or property for less than what it's worth, or
  • paid your favorite creditor more than allowed by bankruptcy law.

That's not to say you can't pay your bills. Once you learn the basic rules, you'll understand when to spend before filing for Chapter 7 or 13, the best time to file for bankruptcy, and more.

Don't Do These Things Before Bankruptcy

Here are some things you won't want to do during the 90 days to two years before a bankruptcy filing. The time will depend on the circumstances.

Paying Certain Creditors

Under bankruptcy law, you can't choose or "prefer" one creditor over another. That's not to say you can't pay your regular monthly bills—you can. But, if you pay more than $600 to any other creditor within 90 days before filing, the Chapter 7 trustee can require the creditor to return the funds.

The lookback period increases to an entire year if the creditor is someone close to you or an "insider" and there isn't a minimum allowed amount. Insiders are typically family members and business partners, and even paying a bill on behalf of an insider will trigger the rule.

Example. Joe pays Bank $1,500 and files for bankruptcy 62 days later. The trustee will likely demand the return of $700 ($1,500 - $600 = $700).

Example. Chris repays $2,400 to his mother six months before filing for bankruptcy. The trustee will want Mom to turn over the $2,400. When Chris learns this from the trustee, he might decide to pay it himself to prevent the trustee from suing Mom and obtaining a money judgment against her.

Learn more about clawback provisions and preferential transfers.

Transferring Property or Hiding Cash Before Filing for Chapter 7 or 13 Bankruptcy

Hiding assets like cash and property is a bankruptcy "no-no" that can come with severe consequences. Giving away property or receiving less than it's worth is also problematic. The trustee can look back two years for what's known as a "fraudulent transfer." The trustee can even reclaim an innocent gift. However, the filer won't be penalized unless the bankruptcy court finds actual fraud.

Example. Allison has $10,000 in a savings account. To hide it from the trustee, she moves the money to her brother's bank account and files for bankruptcy six months later. The trustee can demand the money from Allison's brother, and because it's actual fraud, Allison might face additional penalties.

Example. Trish gave her sister $5,000 of her big gambling win as a birthday gift. Almost two years later, Trish filed for bankruptcy. Because two years hadn't elapsed since Trish gave away the money, the trustee could demand $5,000 from the sister as a fraudulent transfer.

Charging Luxury Goods or Taking a Cash Advance

If you know you can't repay your debts, stop using credit. Otherwise, knowingly running up credit cards before bankruptcy or taking out cash advances is considered fraud.

If you do this soon before filing for bankruptcy, the "presumptive fraud" rule makes it even easier for creditors to recover money. Your fraudulent intent will be presumed—the creditor doesn't have to prove it—if the purchase falls within these guidelines (amounts apply to cases filed between April 1, 2022, and March 31, 2025):

  • You charged over $800 on luxury goods or services on an account within 90 days before filing for bankruptcy.
  • You took out cash advances totaling more than $1,100 within 70 days before filing.

The takeaway? You won't want to use your credit card to purchase multiple pairs of Adidas Yeezys at the Shoe Stop within 90 days of filing for bankruptcy or take out cash advances of over $1,100 within 70 days before bankruptcy.

However, an exception exists for charging necessary items, but be prepared to show that your child needed snow boots or that you didn't have another way to pay the heating bill. Learn more about when to stop using credit cards before bankruptcy

When Spending Cash Before Filing for Chapter 7 or Chapter 13 Bankruptcy Is Okay

You can spend cash before bankruptcy if you're using it to pay for necessary bills because you have the right to pay for the things you need to work and live. However, you should avoid incurring new debt and not pay one creditor off while leaving the others high and dry.

For instance, the bankruptcy trustee responsible for your case likely won't object to using cash for food, school supplies, needed work clothes, rent, or your cellphone bill. And if money is tight, you can sell your property and spend the cash on the things you need. But keep good records in case the bankruptcy trustee asks about the transactions.

When You'll Want to Delay Filing for Bankruptcy

You'll likely want to put a temporary hold on your bankruptcy filing if you find yourself in one of these situations.

Delaying Filing for Chapter 7 Qualification Purposes

If you don't qualify for Chapter 7 now but will in a few months because of a drop in income, consider waiting to file until you're qualified. For instance, suppose you recently lost a high-paying job and would like to lighten your debt load by filing for Chapter 7. You might not qualify because the Chapter 7 means test averages your income over six months, but give it time. Your average income will go down each month you remain unemployed.

Delaying a Bankruptcy Filing When Modifying a Mortgage

If you're working with your mortgage lender to modify your home mortgage and want to file for Chapter 7, consider waiting until you've completed the modification. Why? Because most lenders will stop working with you once the automatic stay goes into effect. If you're behind on your payments, you could risk losing your house because Chapter 7 doesn't have a mechanism to help people keep homes from foreclosure.

Otherwise, consider Chapter 13 if you're facing foreclosure. If you make enough to catch up on the payment arrears and pay other required amounts, you can eliminate debt and keep your home.

Delaying Bankruptcy If You're Expecting a Windfall

You're probably not bankrupt if you're expecting a large amount of money from any source. The good news? You'll likely be able to get yourself out of debt.

Don't be tempted to save a few bucks by filing a quick Chapter 7. It's rarely a good strategy. You must report any money you're owed or entitled to in your bankruptcy paperwork, even if you haven't received it. And reporting requirements don't end when your bankruptcy closes. You must tell the trustee about any inheritance and lottery winnings you receive in the following six months.

However, if you don't think you'll get much, you could hold off on filing. Instead, spend the money on necessities like car repairs, replacement appliances, and dental work. Just keep good records. The trustee appointed to your case might ask you to prove you bought needed items and that you're not using a strategy to avoid paying creditors.

Delaying When You Want to File for Bankruptcy a Second Time

If you receive a discharge in a Chapter 7 bankruptcy, you can't get another Chapter 7 discharge for eight years. Also, you can't get a discharge in Chapter 13 bankruptcy unless you wait to file for four years after filing the Chapter 7 case.

However, these rules don't prevent you from filing for bankruptcy. They only prohibit a discharge. You can file for Chapter 13 bankruptcy immediately after completing Chapter 7, but you won't receive a discharge of your remaining debts at the end of your Chapter 13 repayment plan.

So why would you want to file a Chapter 7 or Chapter 13 case without receiving a discharge? In Chapter 7, you might want the trustee to sell and distribute assets to creditors transparently. Chapter 13 filers can use the filing to stop collection actions and force creditors into a payment plan over time.

Also, sometimes people benefit from filing for Chapter 13 right after finishing Chapter 7. It's common enough that it has earned its informal name of "Chapter 20 bankruptcy." You can use a "Chapter 20 bankruptcy" to deal with debts not discharged through your Chapter 7 bankruptcy. The Chapter 13 repayment plan gives you an opportunity to pay off those debts over three or five years with the protection of the bankruptcy court.

Navigating Your Bankruptcy Case

Bankruptcy is essentially a qualification process. The laws provide instructions for completing a 50- to 60-page bankruptcy petition, and because the rules apply to every case, you can't skip a step. We want to help.

Below is the bankruptcy form for this topic and other resources we think you'll enjoy. For more easy-to-understand articles, go to TheBankruptcySite.

More Bankruptcy Information

Bankruptcy Forms and Document Checklist

Your Statement of Financial Affairs for Individuals Filing for Bankruptcy

Chapter 7 Statement of Your Current Monthly Income

Chapter 7 Means Test Calculation

Chapter 7 and 13 Bankruptcy Form List

Bankruptcy Document Checklist

More You Might Like

How Much Debt Do I Need to File for Bankruptcy?

Will I Lose All My Property If I File for Bankruptcy?

Running Up Credit Card Debt Before Bankruptcy: Is It Fraud?

Will Bankruptcy Affect My Spouse?

Questions to Expect at the 341 Meeting in Your Bankruptcy Case

We wholeheartedly encourage research and learning, but online articles can't address all bankruptcy issues or the facts of your case. The best way to protect your assets in bankruptcy is by hiring a local bankruptcy lawyer.

Updated January 4, 2025

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