Most people do not anticipate filing bankruptcy. In fact, many try so hard to avoid filing that they end up waiting too long and not taking full advantage of the bankruptcy laws designed to protect them. In many cases, prospective debtors seek bankruptcy advice only after they have depleted all their assets, emptied their bank accounts and have a mountain of debt. While that is the noble thing to do, it is not always the most financially sound course of action.
If a debtor no longer has any significant assets and their income is such that they qualify for a Chapter 7 bankruptcy (which allows a full discharge of most debts), planning for the bankruptcy is often not needed. They can generally file the case whenever they want unless their income suddenly increases substantially or they have created a large part of their debt too recently.
For those who think about the possibility of bankruptcy while they still have some assets (such as money in the bank or a stock account), planning is often a good idea, and in some cases, required. If a debtor has too much value in assets, whether it is real estate, cars, cash, stocks, or other items of value, they may want to liquidate or spend those assets down to a value that can be protected in a Chapter 7 bankruptcy case.
Another situation where planning is helpful arises when there is recently created debt. If a debtor files bankruptcy soon after using credit cards in large amounts, or creating other types of debt that he expects to discharge, the creditors can challenge the discharge of those debts. Additionally, the bankruptcy trustee can attempt to dismiss a case altogether if the credit usage just before the filing appears abusive.
It is also problematic in some cases to pay some creditors, but not others, prior to filing a bankruptcy. That is especially true if the creditor receiving payments is a family member, friend or business partner.
If you are considering a bankruptcy filing sometime in the future, it is often wise to consult with a bankruptcy attorney prior to reaching your breaking point to see if any planning is needed to achieve the best results.
For more information or a consultation, please call 661-210-5657, or e-mail mjf4bk@ca.rr.com.