German YusufovFebruary 15, 2025

Debt can feel like a never-ending cycle, and when bills pile up faster than you can pay them, bankruptcy may seem like the only way out. If you’re considering filing for bankruptcy in Arizona, it’s important to do it right. Mistakes can cost you money, delay your case, or even lead to a dismissal.

At Yusufov Law Firm PLLC, we understand how difficult financial hardship can be. Our goal is to guide you through bankruptcy and help you make decisions that protect your future. We’ve seen too many people make the same errors when filing, and we want to help you avoid them. Here are seven of the most common mistakes—and how to steer clear of them.

1. Keeping Too Much Money in Your Bank Account

Arizona law limits how much money you can have in your bank account when filing for bankruptcy. For individuals, the limit, as of 2025, is $5,400 in one account. Married couples can have up to $10,800 in one account or up to $5,400 in two separate accounts. If your balance exceeds these limits, the bankruptcy trustee may seize the extra funds to pay creditors.

Some people try to withdraw cash to keep it safe, but that can raise red flags. Cash isn’t protected under exemption laws, and large withdrawals before filing can look suspicious to the trustee and the court.

The best approach? Spend excess funds on necessary expenses before filing. Rent, food, medical bills, and legal fees are all legitimate uses of your money. A knowledgeable bankruptcy attorney can help you plan the right timing for your case to avoid unnecessary losses.

2. Paying Back Friends or Family Before Filing

If you’ve borrowed money from a relative or close friend, it’s natural to want to pay them back before filing for bankruptcy. However, these payments can be considered “preferential transfers.” If you repay a friend or family member within one year of filing, the trustee can force them to return the money to redistribute it fairly among all creditors.

This can create an awkward situation for both you and your loved one. Instead of making payments before filing, discuss your options with a bankruptcy attorney. You may be able to include the debt in your bankruptcy case or negotiate a way to repay them later.

3. Transferring Property to Friends or Family

Giving away property or selling it for less than its market value before filing for bankruptcy can cause serious problems. The court may see this as an attempt to hide assets, and the trustee can reverse the transaction. This applies to cars, real estate, and other valuable possessions.

If you need to sell something before filing, make sure you get fair market value and document the transaction properly. Avoid transferring property to family members—it’s a red flag that can lead to legal trouble. Instead, talk to an attorney about how to protect your assets legally.

4. Mishandling Your Tax Refund

A tax refund is considered an asset in bankruptcy, which means the trustee can take it to pay creditors. If you file before receiving your refund, the court may seize it as part of your bankruptcy estate.

To protect your refund, consider using it for necessary expenses before filing. Paying rent, medical bills, or groceries is a safe way to spend the money. However, giving it to family, repaying loans, or transferring it to a savings account could cause issues. An experienced bankruptcy attorney can help you time your filing to keep as much of your refund as possible.

5. Owning Non-Exempt Real Estate

Arizona law protects your primary residence under the homestead exemption, but other properties—such as rental homes, vacation homes, or vacant land—are not exempt. The bankruptcy trustee may sell it to pay creditors if you own non-exempt real estate with significant equity.

Consult a bankruptcy attorney if you’re unsure whether your property is protected. They can help you understand your options and determine whether Chapter 7 or Chapter 13 bankruptcy is better for your situation.

6. Ignoring Potential Personal Injury Claims

If you’ve been injured in an accident and have a pending personal injury claim, it’s considered an asset in bankruptcy—even if you haven’t received a settlement yet. Failing to disclose it can result in serious legal consequences, including case dismissal or loss of the claim.

In some cases, you may be able to exempt part or all of a settlement, but this depends on state laws and the details of your case. If you’re involved in a personal injury claim, discuss it with your attorney before filing for bankruptcy.

7. Receiving an Inheritance After Filing

Bankruptcy law includes a 180-day rule: If you receive an inheritance within 180 days (about six months) after filing, the money or property may become part of your bankruptcy estate and could be taken to pay creditors.

Even if you haven’t received the inheritance, the key date is when you became entitled to it. If you expect to inherit money or property soon, discuss your options with a bankruptcy attorney before filing. Depending on your situation, waiting a little longer to file (or filing a little sooner) may help protect your inheritance.

Bonus Issue: Wages Earned but Not Yet Received

If you’ve worked but haven’t been paid when filing, a portion of your earnings may be considered part of the bankruptcy estate. In Arizona, up to 10% of wages earned before filing but not paid until after filing can be seized once they’re paid.

This is especially important for those with commission-based jobs or large bonuses. It may be worth waiting to file if you’re expecting a significant paycheck. A bankruptcy attorney can help you plan the right strategy to minimize wage loss.

Correcting Bankruptcy Mistakes and the Role of Chapter 13

Mistakes made before filing can sometimes be corrected. However, if you’ve already filed and have problems, Chapter 13 bankruptcy may offer a solution. Unlike Chapter 7, which liquidates assets, Chapter 13 allows you to create a repayment plan that can help protect property and address errors.

Chapter 13 can also help if you’re behind on mortgage or car payments, allowing you to catch up over time. If you’re concerned about mistakes in your case, consulting a bankruptcy attorney as soon as possible is crucial.

Take Control of Your Financial Future: Contact Yusufov Law Firm PLLC Today

Bankruptcy can be a powerful tool to regain financial stability, but small mistakes can lead to unnecessary complications. At Yusufov Law Firm, we’re committed to helping you through the process, avoiding common pitfalls, and ensuring you get the fresh start you deserve.

If you’re considering bankruptcy and need guidance, contact us today. We’re here to help you understand your options and make the best decisions for your future. Call us now at (520) 745-4429 in Tucson or (480) 788-0098 in Mesa/Phoenix for a free consultation.