During the bankruptcy filing process, after declaration of intent and prior to actual filing, how may money from the sale of assets be spent? I understand there is a limit to what can be repaid to family members, but what is it? Can it be spent to repay other personal or business debts, or spent on consumer goods?

  • 2
    I'd hesitate to go near this question. You need legal advice from someone with expertise in this area and a professional responsibility to give you the best advice they can after looking at the details of your specific situation. You don't want to risk fraud charges because you took advice from the web.
    – keshlam
    Apr 22, 2015 at 5:03
  • Jim - I saw your question at Meta. Did you want this particular question here made anonymous? Or just suggesting it might have been a nice option? Apr 22, 2015 at 11:14
  • @JoeTaxpayer Had making this question anonymous been an option, I would have preferred it. Not seeing an option to do so is what spurred my suggestion on meta.
    – Jim Fell
    Apr 22, 2015 at 15:42
  • Reminds me of the old joke of the guy who calls the bankruptcy attorney and asks them if they take credit cards. ;-)
    – user12515
    Apr 4, 2020 at 7:31

2 Answers 2


Bankruptcy law is complex. You need a lawyer who can advise you both on the statute and relevant case law for the district where you file. Your lawyer can advise you whether actions you contemplate are allowed. You can obtain advice prior to filing as you seek to determine whether the law and the relief it offers are suitable to your situation.

Anyone considering filing BK should know that they will need to provide fairly extensive information. You should learn about BK as you seek to understand whether that path is the best for your situation. You should ask your lawyer specific questions about your situation and try to learn as much as you can.

You should read about the problems with taking out debt or making debt repayments to creditors (especially family) prior to filing BK. These actions could impact your case and cause it to be dismissed, and could even be considered criminal (again, you need a lawyer).

Some things to learn about as you contemplate Bankruptcy

Be aware that BK is federal law, and you will be required to provide extensive information about your financial situation. You will be required to show up for the creditors meeting and testify that you have provided correct information. The trustee may (will) supply objections to which you and your lawyer will need to respond.

Among other things, you will supply,

  • A list of Assets and Debts (Balance Sheet)
  • A list of Income and Expenses (Income Statement)

You should seek legal advice about things that might become important,

  • Ask about median income for your state
  • Learn about presumption of abuse (your income vs. median income)
  • Ask your lawyer to explain how to determine the value of your Assets
  • Ask your lawyer to explain how to determine your expenses for Ch7, Ch13
  • Ask about assets that are excluded and the amounts
  • Read about percentage of filers who complete a Ch13 repayment plan
  • Are you married, do you have kids?
  • How old is your vehicle?
  • How much is your vehicle worth? How much do you owe on your vehicle?
  • Do you have health problems?
  • Do you own family heirlooms that have value?
  • Do you have collections (guns, art, jewelry, etc)?

Even though you will have guidance from your lawyer, you are the one seeking relief, and you need to understand your own situation and the law.


Paying one creditor and not paying another is called "avoidable preference" and it means the trustee can unfo the payment. According to NOLO, the trustee can undo the transaction and distribute it among your creditors, if...

you paid the creditor more than $600 within 90 days before your bankruptcy filing; however, actual practices can vary depending on the court and trustee

That doesn't apply if you were solvent when you made the payment, but that doesn't sound like your situation.

If you make a payment to a creditor that falls within the rules defining an avoidable preference, the trustee is authorized to take back the money or property. There is no penalty to you.

All of the above is from NOLO and not legal advice.

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