If you are thinking about filing bankruptcy, what you do before the case is filed can matter just as much as what happens after. Bankruptcy is designed to give honest debtors a fresh start, but certain pre-filing decisions can create unnecessary complications, draw trustee scrutiny, or even put otherwise protected property at risk.

The good news is that many of the most common mistakes are avoidable with proper planning. That is especially true in New York, where exemption laws often protect substantial equity in a home, retirement accounts, and other essential assets.

Quick Answer

The most common pre-filing mistakes include: paying back family before filing, transferring assets, cashing out retirement accounts, using credit cards right before filing, waiting too long to get legal advice, and mishandling cash or bank accounts. Each of those decisions can affect how your bankruptcy case unfolds.

1. Paying Back Family or Friends Before Filing

It is natural to want to repay loved ones first, especially if they helped you through a difficult time. But bankruptcy law treats those payments differently than most people expect. Under 11 U.S.C. § 547, a trustee may avoid certain payments made before filing if they are considered preferential transfers, and the lookback period extends to one year for insiders, which generally includes family members.

That means a well-intentioned repayment to a parent, sibling, or other insider shortly before filing can actually create a problem in the bankruptcy case. The trustee may seek to recover the money from the recipient, even if everyone acted in good faith.

This issue is especially important in New York because many debtors already have strong exemption protection. In Albany County, for example, New York’s current homestead exemption protects up to $170,700 in equity per owner, and married couples who co-own property may generally double that amount. Higher-cost counties such as Westchester, Nassau, Suffolk, Rockland, Putnam, and the New York City counties have a homestead exemption of $204,825, while many other counties are at $102,400. These adjusted figures took effect on April 1, 2024 and remain in effect until the next scheduled adjustment.

In other words, if your property is already largely protected, repaying family before filing often does not improve your outcome and may make your case harder.

Takeaway: Before paying back family or friends, it is important to understand whether the payment could be clawed back later.

2. Transferring Property Out of Your Name

Another common mistake is trying to “protect” property by transferring it to someone else before filing. For example, people sometimes add a relative to a deed, transfer a vehicle title, or move funds into another person’s account because they assume that will keep the asset safe. In reality, those transfers can create serious problems.

Under 11 U.S.C. § 548, a trustee may avoid certain transfers made within two years before filing if the debtor made the transfer with actual intent to hinder, delay, or defraud creditors, or if the debtor received less than reasonably equivalent value while insolvent or rendered insolvent.

This matters because New York law often already provides protection without requiring a last-minute transfer. As noted above, New York’s homestead exemption can be substantial depending on the county. New York also protects many retirement accounts and various personal property categories, and your own site’s 2026 exemption update explains that New York filers can often protect household goods, tools of the trade, and a modest amount of vehicle equity, as well as cash and wildcard protection if the homestead exemption is not used.

Takeaway: If you are trying to protect property, do not guess. In New York, lawful exemption planning is often far better than transferring assets and hoping for the best.

3. Cashing Out Retirement Accounts to Pay Debt

This is one of the most painful mistakes because it can permanently damage long-term financial security. Many people assume they should use retirement savings to pay credit cards, loans, or medical debt before filing, but retirement funds are often among the most protected assets in bankruptcy.

New York’s exemption framework, along with federal bankruptcy law, protects many tax-qualified retirement funds, including accounts exempt from taxation under sections such as 401, 403, 408, 408A, and 457 of the Internal Revenue Code. Your site’s exemption update also notes that retirement accounts such as 401(k)s and IRAs are generally fully protected.

The problem arises when protected retirement money is withdrawn and turned into ordinary cash. Cash is typically not protected to the same extent. In New York, if you do not use the homestead exemption, your site’s 2026 update indicates that you may protect up to $6,825 in cash plus a $1,325 wildcard in any property; if you do use the homestead exemption, cash protection is much more limited.

So by cashing out a protected retirement account, a debtor may convert fully protected funds into partially protected or nonexempt money—and may also trigger taxes and penalties.

Takeaway: In many cases, using retirement savings to pay dischargeable debt before bankruptcy is not just unnecessary—it is harmful.

4. Running Up Credit Cards Before Filing

Using credit cards shortly before bankruptcy is one of the fastest ways to turn a straightforward case into a contested one. Creditors can object to dischargeability if they believe charges were incurred without intent to repay, and recent spending on luxury items or cash advances is often scrutinized closely.

Even when a case is otherwise clean, unnecessary credit card usage before filing can invite litigation over particular debts. That is a bad trade for most debtors—especially in New York, where exemptions may already be sufficient to protect the property they need to keep.

If bankruptcy is becoming a real possibility, it is usually better to stop using credit cards and get advice before incurring new unsecured debt.

Takeaway: Bankruptcy is meant to solve debt problems, not create new ones. Avoid new credit card charges once filing is on the table.

5. Waiting Too Long to Seek Advice

Many people delay speaking with bankruptcy counsel because they feel overwhelmed, embarrassed, or hopeful that things will improve. Unfortunately, waiting can reduce available options. By the time someone seeks help, there may already be lawsuits, judgments, garnishments, levies, or lost planning opportunities.

Timing matters in exemption planning. New York is a choice jurisdiction for many filers, meaning eligible debtors may use either the New York exemption scheme or the federal bankruptcy exemptions, but not both, and the choice can materially affect what property is protected. Federal law also contains a 730-day domicile rule that determines which state’s exemptions apply.

That means early advice is often critical. A person with significant home equity may benefit from New York’s homestead exemption, while another filer with limited home equity but more cash or miscellaneous property may want to compare the federal system. The federal exemptions adjusted effective April 1, 2025 include a homestead exemption of $31,575, a motor vehicle exemption of $5,025, and a wildcard exemption of $1,675 plus up to $15,800 of unused homestead protection, if the debtor is permitted to elect the federal set.

Takeaway: The earlier you get advice, the more likely you are to preserve options and avoid preventable mistakes.

6. Mishandling Cash and Bank Accounts Before Filing

Cash is one of the most sensitive assets in bankruptcy because it is easy to move, easy to spend, and often difficult to trace if records are poor. Large withdrawals, transfers to third parties, unusual spending, or unexplained depletion of bank balances can all raise questions in a bankruptcy case.

This is especially important in New York because cash exemptions are relatively narrow compared with protections for retirement funds and homestead equity. Again, your site’s 2026 exemption update states that if the homestead exemption is not used, a debtor may protect up to $6,825 in cash plus a $1,325 wildcard; if the homestead exemption is used, those cash protections do not provide the same flexibility.

In practical terms, that means timing, tracing, and documentation matter. A debtor who drains a bank account without a clear record may create unnecessary questions. A debtor who leaves substantial cash in an account without planning may expose funds that could have been addressed more carefully with advance advice.

Takeaway: Do not make large cash moves before filing without understanding the consequences. Cash requires planning.

Final Thoughts

Filing bankruptcy in New York does not mean losing everything. New York law provides meaningful protection for many debtors, including substantial homestead protection in counties such as Albany, protection for many retirement accounts, and additional exemptions for personal property and, in some cases, cash.

But those protections work best when the case is planned properly. Paying family, transferring property, cashing out retirement funds, using credit cards, waiting too long, or mishandling cash can turn an otherwise manageable case into a much harder one.

If you are considering bankruptcy, the best next step is usually simple: pause before making major financial moves and get advice first. A short consultation can often help you protect assets, avoid pre-filing mistakes, and position your case for the strongest possible outcome.