Telling someone you are looking for a strategy to file bankruptcy would sound rather suspicious. Honestly, who plans ahead to go bankrupt? Truthfully, if you're struggling financialy and filing bankruptcy is your only option for debt relief, then you do want to plan ahead prior to filing your bankruptcy petition. You will need first to decide whether you will be filing Chapter 7 bankruptcy, Chapter 13 bankruptcy, or a Chapter 11 business bankruptcy.
Pre-Bankruptcy Planning
Pre-bankruptcy planning should include the following:
Which Debts Can Be Discharged
If you qualify under the "means test" for a Chapter 7 bankruptcy, and you have unsecured debt like medical bills and credit card bills, why would you want to continue paying them if they are able to be discharged? You could use that money for the Dentist appointment you've been avoiding or pay down your car loan.
What Bills Can Be Ignored?
A consultation with a bankruptcy attorney ahead of time will certainly clear up any questions or concerns you might have. For instance, you have $25,000 of unpaid medical bills and a mortgage on your home. If you are going to file bankruptcy then, why not stop paying the medical bills and put the money to better use, or maybe pay down the mortgage if you're retaining the home? The medical bills can be discharged in bankruptcy, whereas the mortgage is a secured loan, which will not be dismissed. In other words, whay pay on unsecured debt when it will be discharged when you file your Chapter 7 bankruptcy?
Large Use of Credit Cards Prior to Filing
If you are using your credit cards and know you are going to be filing for bankruptcy, be frugal. By using your credit cards to buy expensive items such as the new Plasma TV or Computer, you will bring about suspicion from bankruptcy trustee. You do not want the trustee to think there's fraud involved with your bankruptcy filing. If the trustee suspects there was frivolous spending just to be dismissed during the bankruptcy procedure, it can end up causing severe issues.
Time Limits to Be Aware Of
One of the limitations of discharging credit card debt is that you cannot have purchased luxury goods within the past 60 days, or using cash advance from the credit card over $1,000. If this was the case then the bankruptcy court has the choice to not discharge these debts and force you to repay them. For your bankruptcy case to be completely discharged, all non dischargeable debt will need to be paid for in advance.
Bankruptcy Fraud
If you know you will be filing bankruptcy and run up expenses on your credit cards that you know will be discharging, technically you will be committing bankruptcy fraud. Bankruptcy fraud is punishable by law with fines or dismissal of your case. If your case is dismissed you may be forced to wait 6 months to file bankruptcy again.
Exemption Planning: Maximize Your Exemptions
Asset exemptions are a good thing in bankruptcy as they allow you to keep the assets after the entire bankruptcy process is completed. Any assets that have been classified as exempt, the bankruptcy court cannot reclaimed to be liquidated to pay off debts. Non-exempt assets can be reclassified as exempt if certain criteria is satisfied. You should always consult a bankruptcy attorney to maximize exemptions allowed under the law.
Asset Protection
Pre-planning your bankruptcy filing is critical being you cannot file again for several years depending if you are filing Chapter 7 or Chapter 13. You can choose to keep some of your assets if you can plan your pre-bankruptcy steps carefully, or surrender them. It is not illegal to plan your bankruptcy carefully, it's the right thing to do. You should plan step by step prior to filing bankruptcy to achieve the best outcome.
Legal Planning Strategies
Planning prior to filing bankruptcy is legal within the parameters of the bankruptcy laws, and consulting a bankruptcy attorney is a smart choice ahead of time. For example: We had a 72 year old lady who came to us overwhelmed with debt from credit cards and medical bills. She was paying $1,500 a month minimum payments. Not to mention a costly automobile repair she helped her daughter out with. She was current on her mortgage and credit cards but was robbing Peter to pay Paul, as they say. Her 6 year old car was paid off and valued at $23,000, but outside of warranty. Her FICO score was over 700, but if she filed bankruptcy now she would have a difficult time qualifying for a low interest rate loan.
So, she traded in the car for a brand new car with a bumper to bumper 5 year warranty that she was able to get zero percent financing on. This was a strategic move for her as she was able to eliminate all her unsecured debt, keep her home and her brand new car with affordable payments.
Always Talk to an Attorney First
In this case the client was wise to consult a bankruptcy attorney and pre-plan her Chapter 7 bankruptcy. If you are considering bankruptcy as a form of debt relief the bankruptcy attorneys at the Law Offices of Zhou & Chini are here to help. We will be happy to offer you a free consultation and discuss all your options prior to filing your bankruptcy. Please call us toll free at (800) 972-9600.
The bankruptcy process is not one that you want to try to handle on your own. The laws are complex and always changing, and you will want someone experienced in this field of law to look out for you best interests.
