Filing for Chapter 7 bankruptcy should give you a fresh start, but small mistakes can derail the process. As a Chapter 7 Trustee, Larry Simons has seen how cases break down when people leave out critical information, use the wrong exemptions, or make choices that look suspicious in the eyes of the court. These errors can cost you money, property, and even your chance at discharge.
The good news is that these problems are avoidable. By understanding the most common mistakes trustees encounter, you can take steps to prevent them and protect your case from unnecessary risk.
Mistake 1: Leaving Out Bank Accounts and Income
One of the most frequent errors is failing to disclose all financial accounts. Many people forget about older savings accounts, credit union memberships, or online wallets. Others assume they don’t need to mention small side income, like rideshare driving or selling items online. Trustees see these omissions as concealment, even when unintentional.
This matters because Chapter 7 is built on full transparency. Trustees need a complete picture of your finances to confirm that you qualify and to decide whether assets are available to creditors. Missing accounts or income doesn’t just raise questions—it undermines your credibility.
How to avoid it:
- Gather every bank, savings, and online account, even if balances are zero
- List all income, no matter how irregular or small
- Provide your attorney with recent statements so nothing is overlooked
Mistake 2: Undervaluing Property
Debtors often think undervaluing assets will help them keep more under exemption limits. But trustees review valuations carefully. If you list a late-model car at $500 or claim fine jewelry is worth “nothing,” it sends up red flags.
Trustees cross-check values against tools like Kelley Blue Book, auction sites, and professional appraisals. Once they find discrepancies, your entire filing can be questioned. This can lead to disputes, asset turnover, or even denial of discharge if the undervaluation looks intentional.
How to avoid it:
- Use trusted valuation sources
- Be realistic about condition—don’t exaggerate damage or depreciation
- Let your attorney determine how and which exemptions to apply to each item
Mistake 3: Choosing the Wrong Exemption System
California is unique in offering two exemption systems: 703 and 704. Each protects different assets. The 704 system is generally better for homeowners with equity, while 703 can benefit renters or those with retirement accounts and personal property. Picking the wrong one can expose important assets.
This choice is one of the most technical parts of a Chapter 7 case. Once you file, you can’t go back and change systems. Many debtors make this decision without proper advice and end up losing property they could have protected.
How to avoid it:
- Review your full financial picture—home, car, retirement, and personal property
- Ask your attorney to explain how each exemption system applies to your case
- Never make this decision without legal guidance
Mistake 4: Transferring Assets Before Filing
Trying to move property out of your name before filing is a mistake trustees catch quickly. Whether it’s signing a car title over to a family member, selling valuables for less than market value, or transferring a house deed to a friend, these actions look like fraud.
Trustees have the power to reverse transfers that occurred within a certain time frame before filing. Worse, they may pursue penalties if they believe you acted in bad faith. What you thought was a way to protect property can actually cause you to lose more.
How to avoid it:
- Don’t transfer, sell, or gift property before filing without speaking to your attorney
- If you’ve already moved assets, disclose it right away so your attorney can counsel you and provide you the best course of action
- Understand that transparency protects you far more than concealment ever will
Mistake 5: Running Up Debt Right Before Bankruptcy
Some debtors think it’s smart to use credit cards or take out loans right before filing, believing the balances will be wiped away. Trustees and creditors view this as abuse. Large purchases, cash advances, or luxury spending in the seventy five (75) days before bankruptcy are not discharged. If the charges are older than seventy five days, but still fairly recent, the transactions could still raise further questions.
These activities create suspicion and open the door for creditors to object to discharge. That can lead to expensive litigation, repayment obligations, or outright dismissal of your case.
How to avoid it:
- Stop using credit cards once you decide to file
- Avoid taking out new loans or cash advances
- Talk to your attorney if an emergency forces you to use credit
Mistake 6: Ignoring Procedural Requirements
Even when disclosures and exemptions are handled correctly, many cases stall over procedural missteps. Failing to file past-due tax returns, missing mandatory education courses, or not submitting documents on time all create problems. Trustees see these as signs you’re not serious or not prepared.
These requirements may seem basic, but missing them can derail your entire case. Filing bankruptcy is not just paperwork—it’s a legal process that requires full compliance.
How to avoid it:
- File all required tax returns before your petition
- Complete the credit counseling course before filing and the debtor education course afterward
- Stay in close contact with your attorney to ensure every deadline is met
Protecting Your Case and Your Fresh Start
The mistakes trustees see most often aren’t complicated—they’re preventable errors caused by rushing, guessing, or trying to cut corners. Bankruptcy is meant to provide relief, not create more stress. The key is preparation: disclose everything, value property accurately, choose the right exemptions, and follow all requirements closely.
At Janus Law, we guide clients across California, including communities in the San Fernando Valley and the Inland Empire, through every step of the process. Our approach combines compassionate counsel with trustee-level insight, protecting your most important assets and helping you avoid the pitfalls that derail so many cases.
Don’t let simple mistakes put your fresh start at risk. Contact Janus Law right now to schedule your consultation. Take the first step toward financial relief today.
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- 6 Mistakes Trustees See in Chapter 7 Filings (and How to Avoid Them) - October 17, 2025
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