When bankruptcy looms around the corner, many individuals and families start doing all they can to avoid it. Bankruptcy feels like the complete financial bottom, so in order to avoid it they start moving money around and trying to make things work. Some even try to remove money from their asset list in order to protect it during bankruptcy proceedings. Only a qualified bankruptcy lawyer can tell you what you should and should not do prior to filing bankruptcy, but you need to take care to avoid these common mistakes, which could ruin your financial future or your ability to qualify for bankruptcy.

First, be cautious when paying your credit cards. Yes, you need to try to pay them, but do not raid your 401(k) or other retirement savings to do this. Remember, in bankruptcy, most retirement and pension money is protected. Leave it where it is, because you will need it some day. Even a loan against your 401(k) is dangerous, because the trustee for your bankruptcy proceedings may not allow you to repay it, because you are repaying yourself, rather than your creditors.

Another common mistake is filing at the wrong time. If you are expecting a large tax return, for instance, wait until you receive it and can use it. Then, file bankruptcy, because otherwise this money may be taken to pay your creditors.

You do not want to start moving your credit card balances around if a bankruptcy is potentially going to happen. Many states have laws in place to protect credit card lenders when cash advances or balance transfers occur within a period of time before filing for bankruptcy. This means you may be required to repay these debts, even if your bankruptcy is approved. If you made a balance transfer recently, it may be worthwhile to wait to declare bankruptcy until it has been on the books for several months. A qualified bankruptcy attorney can help you understand the specific laws in your state.

One of the biggest mistakes you can make is transferring your assets prior to filing bankruptcy. Many people do this in order to protect certain assets from their creditors, but doing so can create problems. Even if the asset is something you really do not use, such as the bank account for your elderly parent that has your name on it, it is still considered "yours" by the courts. You will need to discuss the best way to handle these types of assets with your attorney.

Because it is so easy to make one of these mistakes, you should start talking with a lawyer long before you are ready to file for bankruptcy. By putting everything in the right order before filing, you better protect yourself from the whims of the court and the protections the law offers to your creditors.