How to Plan For Bankruptcy

Bankruptcy is difficult enough for someone in financial trouble, but if they wait until it is an emergency, leaving them little time to prepare, it can be more difficult, and even dangerous.  There are new laws put in place in the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) to eliminate abuse on the part of petitioners attempting to take advantage of the system.  If debtors take their time and consider their options carefully, they should:

• Analyze their financial situation carefully
• Consult a bankruptcy attorney
• Consider alternatives to bankruptcy
• Examine bankruptcy types
• Learn about and take advantage of all the benefits allowed by law

Analyze Alternatives

It is foolish to rush into bankruptcy without investigating the alternatives that may produce better results with fewer negative consequences.  However, those who explore the alternatives and find no appropriate alternatives, should begin the bankruptcy process early so they don’t have to rush into an emergency situation to preserve their home or property.

Options

There are two common types of bankruptcy:

• Chapter 7: Liquidation  - which is more appropriate for someone who has little or no property to protect
• Chapter 13: Reorganization – which is more appropriate for someone who has more real property, as well as a regular income, making a sustainable repayment plan the appropriate solution

It is crucial to determine which plan fits the debtor’s financial needs.  It may require the advice of a knowledgeable counselor or bankruptcy lawyer to reach the right conclusion.  Once that decision is made, it can help speed the bankruptcy filing if the debtor and their attorney determine the exemptions they will choose if bankruptcy 7 is their selection, or how to prioritize their debts if they have chosen chapter 13.

Preserving Assets

There are restrictions on how a debtor can handle their money and property in the weeks and months prior to filing for bankruptcy.  Some of the restrictions apply to these areas, among others:

Large Pre-Bankruptcy Credit Purchases

Restricting the amount a debtor can charge prior to filing, in order to avoid the implication that they are trying to take advantage of the system by accumulating goods and then having those debts written off.

Paying More to One Creditor

Restricting the amount a debtor can pay above and beyond the minimum payment amount or the average amount that debtor generally pays, in order to avoid showing preference for one creditor, friend, or relative to whom a debt is owed.   The bankruptcy trustee may sue to recover that amount and redistribute it if such a situation occurs.

Do Not Touch Retirement Assets

Retirement Assets are protected under bankruptcy law. For someone contemplating bankruptcy, it is important to continue to protect those assets.  Those who cash these accounts out in hopes of avoiding bankruptcy, only to see that hope dissolve, will eventually lose those retirement money unnecessarily.

When to Talk to an Attorney

Anyone who is facing difficult financial circumstances and begins to realize bankruptcy may be required should consult a bankruptcy attorney as soon as possible.  Planning for this process, protecting assets and property, taking advantage of all the benefits it provides, and protecting their rights are all vital services that an attorney can provide.