Jul 10
8
Even though bankruptcy is never something you want to plan ahead of time, but the truth of the matter is if you are in this precarious financial position, there are definitely some things you can take care of in advance before filing bankruptcy. You can even plan when is a better time to file bankruptcy, whether you will be filing Chapter 7 bankruptcy, or Chapter 13 bankruptcy. Here are just some samples of the pre-bankruptcy issues you can contemplate:
Determine what debt is dischargeable before filing for bankruptcy
If for example you know you can file under Chapter 7 bankruptcy protection, you might as well plan to stop paying the dischargeable debt while saving up those payments for cash reserve or paying down the non dischargeable debt. For example, if you have a credit card that has $20K in outstanding balance, and the outstanding mortgage on your primary residence. If you are quite certain that you will seeking bankruptcy protection, why not stop paying the credit card bill and either keep the money for some other use, or use that money to pay down the mortgage? The credit card balance in most legal circumstances will be dischargeable, whereas the mortgage is a secured loan, which will not be discharged.
So the general idea is to maximize your dischargeable debt while minimizing your non dischargeable debt prior to filing for bankruptcy.
Stop using credit card pre-bankruptcy to avoid any suspicion
Image via Wikipedia
If you already have a good idea that you are financially unstable, and that the chances of filing for bankruptcy protection is high, you should really stop using your credit cards. If you continue charging large and expensive items on your credit card after you have filed for bankruptcy, the bankruptcy court might be suspicious of your intentions. The bankruptcy court might think that you have accumulated all these charges in the hope that the bankruptcy discharge will erase all the debt . If you have withdrawn more than $1,000 from the cash advance option of the credit card, or purchased luxury goods within 60 days of bankruptcy, the court system can rule these debt non dischargeable. When a debt becomes non dischargeable, you will still have to pay for it through the sale of some other assets to pay off this non dischargeable one.
Please be forewarned that if you are using credit cards for purchases that you know you will not be paying for is considered fraud. Fraud is a felony can be subjected to many disciplinary actions by the court system including fines, dismissal of case, or worst case scenario jail time.
Maximize allowable exemptions before filing for bankruptcy
Exemptions in bankruptcy law means that you will be allowed the keep the assets in question. Once an asset has been classified as exempt, the bankruptcy court cannot repossess it from you to be sold off in the auction to pay off the creditors.
Since you want to retain as many assets as possible, prior to filing for bankruptcy protection, you should work with your lawyer on having as many exemptions as possible. There are legal ways in which non-exempt assets can be reclassified as exempt assets hence providing you with more “wealth” at the end of the bankruptcy process.
In conclusion, there are definitely a lot of things that you can do in advance pre-bankruptcy. Some of these if done at the right time, and done legally can save you a lot of money (money which you are short of, and you should look to save every single penny). Do not have the misconception that planning and strategizing your bankruptcy proceeding is illegal. It is within your legal rights to plan your bankruptcy filing as long as you and your lawyer have operated within the boundary of the bankruptcy law.