Most people do not anticipate filing bankruptcy. In fact, many try so hard to avoid filing that they end up waiting too long and losing some of the advantages and protections afforded to them by the bankruptcy code. In some cases, prospective debtors seek bankruptcy advice only after they have depleted all their assets, emptied their bank account, and possibly even used some or all of their retirement savings. While that may be morally admirable, it is not always the best course of action from a financial standpoint.
When a debtor no longer has any significant assets of value, and their income is such that they easily qualify for a Chapter 7 bankruptcy (which allows a full discharge of most unsecured debt), advance planning for a bankruptcy may not be needed. Such debtors can generally file a 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 consider the possibility of bankruptcy while they still have some assets (such as money in the bank, stocks or equity in a home or car), planning is often important, and in some cases, required. If a debtor has too much value in assets, they may want to liquidate and/or spend those assets for their own purposes until they are left with an amount that can be fully protected in a Chapter 7 bankruptcy case.
Another example of where planning is helpful arises when there is recently created debt. If a debtor files a bankruptcy soon after using credit cards in large amounts, or after creating other types of debt that he expects to discharge, the creditors can challenge the discharge as to those debts. Additionally, the bankruptcy trustee can attempt to dismiss a case altogether if the credit use just before filing appears abusive or fraudulent.
It is also a problem 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 or friend.
If you are considering a bankruptcy filing sometime in the future, it is best 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.