Avoid these Chapter 7 bankruptcy mistakes if you're filing in 2026

The decision to file for bankruptcy is rarely easy, but with Americans now carrying more than $1.2 trillion in credit card debt and the average interest rates on those balances exceeding 22%, the crushing weight of borrowers' financial obligations has pushed many toward considering bankruptcy as a path to relief. In particular, Chapter 7 bankruptcy, which is often called liquidation bankruptcy, can eliminate most of your unsecured debts within months, but only if you navigate the process correctly.

The bankruptcy system operates under strict federal rules, after all, and even small missteps can have significant consequences. Some errors might simply delay your case or require additional paperwork, but others could result in your bankruptcy being dismissed entirely, leaving you responsible for all your debts plus the costs you've already incurred in filing. In the worst scenarios, certain mistakes could even expose you to accusations of bankruptcy fraud, which carries serious legal penalties. 

That's why understanding what can go wrong is the first step in ensuring your bankruptcy actually delivers the fresh financial start you're seeking. But what critical mistakes do you need to avoid if you're filing for Chapter 7 this year?

Find out how to start tackling your high-rate debt now.

Chapter 7 bankruptcy mistakes to avoid in 2026

If you're thinking about filing for Chapter 7 bankruptcy in 2026, be sure to steer clear of these common errors, which could undermine your case or leave you in a worse financial position:

Running up credit cards right before filing

One of the biggest red flags in a Chapter 7 case is recent credit activity. Using credit cards heavily in the weeks or months before filing, especially for nonessential purchases, can raise questions about intent. Courts may view these charges as abuse, and creditors can object to having them discharged.

And with lenders and trustees paying closer attention to digital spending trails right now, this mistake is easier to spot than ever. Large purchases, cash advances or balance transfers shortly before filing can lead to certain debts being excluded from discharge, or worse, jeopardize your entire case.

Learn about the debt relief options that can help you avoid bankruptcy.

Transferring or hiding assets

Some people panic before filing for bankruptcy and try to protect their property from being sold to pay creditors by giving it to a friend or relative, selling it for less than it's worth or moving money out of accounts. That plan almost always backfires, though.

Chapter 7 requires full transparency. Trustees are allowed to look back months, and sometimes years, for asset transfers. If they believe you intentionally tried to hide or shield property, they can undo the transfer, deny your discharge or refer the case for further review. 

If you're worried about losing assets, that's a sign you should explore your other debt relief options with a professional before filing. It is not a sign to take matters into your own hands.

Failing the means test by filing too soon

Filing too quickly is a mistake that can lock you into a less favorable outcome. That's because Chapter 7 eligibility depends on the bankruptcy means test, which compares your income to state medians and allowable expenses. So, filing at the wrong time, like right after you've received a bonus, overtime pay or a temporary income bump, can push you over the threshold.

If income volatility is common for you, the timing of your filing matters. Waiting a few months to file could mean qualifying for Chapter 7 instead of being forced into Chapter 13, which involves a multi-year repayment plan. 

Choosing the wrong exemptions

Exemptions determine what property you can keep in Chapter 7, and they vary widely by state. Some bankruptcy filers assume everything they own is protected, while others unnecessarily give up assets because they misunderstand exemption rules.

Selecting the wrong exemptions or failing to claim them properly can lead to losing property you might have been able to keep, such as equity in a vehicle or funds in a bank account. This is a technical area where small errors can have permanent consequences.

Treating Chapter 7 as a stand-alone fix

Filing without a longer-term plan can leave you back in financial trouble sooner than expected. Chapter 7 can eliminate unsecured debt, but it doesn't solve every financial problem or every type of debt. For example, it won't erase student loans in most cases, nor will it fix ongoing cash-flow issues or prevent future debt if spending patterns don't change.

In most cases, you'll benefit from looking at Chapter 7 as part of a broader debt relief plan, one that may also include budgeting support, negotiation on nondischargeable debts or alternative debt relief options if bankruptcy isn't the right fit. 

The bottom line

Chapter 7 bankruptcy can offer meaningful relief, but it's not a do-it-yourself reset button. The most damaging mistakes often happen before paperwork is ever filed via rushed decisions, poor timing or misunderstandings about how the process works.

If you're planning to file for Chapter 7 bankruptcy in 2026, slowing down, getting informed and weighing all your debt relief options can mean the difference between a clean discharge and a costly setback. Done right, bankruptcy can be a turning point. Done wrong, it can create new problems when you're already under financial stress.