wallet: fix unnamed wallet migration failure

diff --git a/src/wallet/wallet.cpp b/src/wallet/wallet.cpp
index 9c51fb51..c5b0a496 100644
--- a/src/wallet/wallet.cpp
+++ b/src/wallet/wallet.cpp
@@ -480,10 +480,22 @@ std::shared_ptr<CWallet> RestoreWallet(WalletContext& context, const fs::path& b
             return nullptr;
         }
 
+        // Wallet directories are allowed to exist, but must not contain a .dat file.
+        // Any existing wallet database is treated as a hard failure to prevent overwriting.
         if (fs::exists(wallet_path)) {
-            error = Untranslated(strprintf("Failed to create database path '%s'. Database already exists.", fs::PathToString(wallet_path)));
-            status = DatabaseStatus::FAILED_ALREADY_EXISTS;
-            return nullptr;
+            // If this is a file, it is the db and we don't want to overwrite it.
+            if (!fs::is_directory(wallet_path)) {
+                error = Untranslated(strprintf("Failed to restore wallet. Database file exists '%s'.", fs::PathToString(wallet_path)));
+                status = DatabaseStatus::FAILED_ALREADY_EXISTS;
+                return nullptr;
+            }
+
+            // Check we are not going to overwrite an existing db file
+            if (fs::exists(wallet_file)) {
+                error = Untranslated(strprintf("Failed to restore wallet. Database file exists in '%s'.", fs::PathToString(wallet_file)));
+                status = DatabaseStatus::FAILED_ALREADY_EXISTS;
+                return nullptr;
+            }
         } else {
             // The directory doesn't exist, create it
             if (!TryCreateDirectories(wallet_path)) {
@@ -4322,11 +4334,28 @@ util::Result<MigrationResult> MigrateLegacyToDescriptor(std::shared_ptr<CWallet>
         }
     }
 
-    // In case of loading failure, we need to remember the wallet dirs to remove.
+    // In case of loading failure, we need to remember the wallet files we have created to remove.
     // A `set` is used as it may be populated with the same wallet directory paths multiple times,
     // both before and after loading. This ensures the set is complete even if one of the wallets
     // fails to load.
-    std::set<fs::path> wallet_dirs;
+    std::set<fs::path> wallet_files_to_remove;
+    std::set<fs::path> wallet_empty_dirs_to_remove;
+
+    // Helper to track wallet files and directories for cleanup on failure.
+    // Only directories of wallets created during migration (not the main wallet) are tracked.
+    auto track_for_cleanup = [&](const CWallet& wallet) {
+        const auto files = wallet.GetDatabase().Files();
+        wallet_files_to_remove.insert(files.begin(), files.end());
+        if (wallet.GetName() != wallet_name) {
+            // If this isn’t the main wallet, mark its directory for removal.
+            // This applies to the watch-only and solvable wallets.
+            // Wallets stored directly as files in the top-level directory
+            // (e.g. default unnamed wallets) don’t have a removable parent directory.
+            wallet_empty_dirs_to_remove.insert(fs::PathFromString(wallet.GetDatabase().Filename()).parent_path());
+        }
+    };
+
+
     if (success) {
         Assume(!res.wallet); // We will set it here.
         // Check if the local wallet is empty after migration
@@ -4334,15 +4363,15 @@ util::Result<MigrationResult> MigrateLegacyToDescriptor(std::shared_ptr<CWallet>
             // This wallet has no records. We can safely remove it.
             std::vector<fs::path> paths_to_remove = local_wallet->GetDatabase().Files();
             local_wallet.reset();
-            for (const auto& path_to_remove : paths_to_remove) fs::remove_all(path_to_remove);
+            for (const auto& path_to_remove : paths_to_remove) fs::remove(path_to_remove);
         }
 
         // Migration successful, load all the migrated wallets.
         for (std::shared_ptr<CWallet>* wallet_ptr : {&local_wallet, &res.watchonly_wallet, &res.solvables_wallet}) {
             if (success && *wallet_ptr) {
                 std::shared_ptr<CWallet>& wallet = *wallet_ptr;
-                // Save db path and load wallet
-                wallet_dirs.insert(fs::PathFromString(wallet->GetDatabase().Filename()).parent_path());
+                // Track db path and load wallet
+                track_for_cleanup(*wallet);
                 assert(wallet.use_count() == 1);
                 std::string wallet_name = wallet->GetName();
                 wallet.reset();
@@ -4365,8 +4394,8 @@ util::Result<MigrationResult> MigrateLegacyToDescriptor(std::shared_ptr<CWallet>
         if (res.solvables_wallet) created_wallets.push_back(std::move(res.solvables_wallet));
 
         // Get the directories to remove after unloading
-        for (std::shared_ptr<CWallet>& w : created_wallets) {
-            wallet_dirs.emplace(fs::PathFromString(w->GetDatabase().Filename()).parent_path());
+        for (std::shared_ptr<CWallet>& wallet : created_wallets) {
+            track_for_cleanup(*wallet);
         }
 
         // Unload the wallets
@@ -4385,9 +4414,15 @@ util::Result<MigrationResult> MigrateLegacyToDescriptor(std::shared_ptr<CWallet>
             }
         }
 
-        // Delete the wallet directories
-        for (const fs::path& dir : wallet_dirs) {
-            fs::remove_all(dir);
+        // First, delete the db files we have created throughout this process and nothing else
+        for (const fs::path& file : wallet_files_to_remove) {
+            fs::remove(file);
+        }
+
+        // Second, delete the created wallet directories and nothing else. They must be empty at this point.
+        for (const fs::path& dir : wallet_empty_dirs_to_remove) {
+            Assume(fs::is_empty(dir));
+            fs::remove(dir);
         }
 
         // Restore the backup
diff --git a/test/functional/wallet_backup.py b/test/functional/wallet_backup.py
index c658af26..2c78f038 100755
--- a/test/functional/wallet_backup.py
+++ b/test/functional/wallet_backup.py
@@ -132,7 +132,7 @@ class WalletBackupTest(BitcoinTestFramework):
         backup_file = self.nodes[0].datadir_path / 'wallet.bak'
         wallet_name = "res0"
         wallet_file = node.wallets_path / wallet_name
-        error_message = "Failed to create database path '{}'. Database already exists.".format(wallet_file)
+        error_message = "Failed to restore wallet. Database file exists in '{}'.".format(wallet_file / "wallet.dat")
         assert_raises_rpc_error(-36, error_message, node.restorewallet, wallet_name, backup_file)
         assert wallet_file.exists()