If the Court sees you preferring one creditor over the other prior to your filing, that may create issues in your bankruptcy due to preferential treatment. For instance, if you have credit cards and also have a personal loan from a family member and choose to pay that personal loan prior to filing your case, the Court could invalidate the payments made to your family member. The basis is, you weren’t paying your credit cards and instead chose to pay back your family member.

Again, the timing matters. If you paid a family member back 8 months before filing, it likely won’t be interpreted negatively in most situations. However, if 30 days before filing you paid back your family member $5,000 while you weren’t paying any other creditors, then the Court will likely view that transaction negatively. 

Another big red flag is if you transfer assets prior to filing your case. For example, if you transfer a rental property to a family member prior to filing, the Court will be able to void that transaction. They would evaluate that transaction and inquire as to whether you received fair market value. So, if your rental property was worth $80,000 and you sold it to your cousin for $25,000, that would allow the Court to void the transaction. 

This doesn’t mean you cannot take actions to improve your financial situation before filing, it just means that you need to talk with your attorney about what you want to do first. 

My rule of thumb for clients who are about to file is to consult with me before making any big financial decisions.