Planning Ahead Helps Debtors Get the Most Out of Filing for Bankruptcy
Ever heard the old saying: “Failing to prepare is preparing to fail?” It may never be truer than when you’re filing for bankruptcy.
Many debtors file for bankruptcy as a last-ditch effort, without a lot of advance planning. Often this is because they’ve spent the months or years leading up to their bankruptcy filing living in debt denial.
While it may not be fun to think about bankruptcy, avoiding what is potentially inevitable will only make your situation worse. If you’ve got more debt than you can pay off within a reasonable timeframe, there’s no way around it: you need help. For many people with overwhelming credit card debt, medical bills and mortgage payments, bankruptcy is the most effective and realistic solution.
We all know that bankruptcy can eliminate certain types of debt. But planning ahead can give you the power to maximize the debt you eliminate, keep more (or all) of your assets in bankruptcy, and ensure your case moves quickly and smoothly.
Remember, just because you explore filing for bankruptcy doesn’t mean that it’s the right choice for you – or that you’ll end up filing. If you are able to get out of debt by adjusting your budget or finding a new source of income, great! However, if you determine that bankruptcy truly is your best debt relief strategy, you’ll have a plan in place. Here are a few tips for getting started.
Time Your Filing
Bankruptcy is the most powerful tool for wiping out debt – but it can only wipe out debts that exist at the time of your bankruptcy filing. If you’re considering filing for bankruptcy in the future, make sure to consider any future debts.
For instance, if you’re struggling with medical bills and you know that you are going to incur one more large medical expense in three months, you may want to delay your filing so that you can include your last large debt. However, it’s important to be careful here. You can’t use bankruptcy as an excuse to ring up credit debt or other debts that you have no intention of paying back; this is considered bankruptcy fraud.
In fact, you’ll want to avoid making any luxury purchases in the months leading up to your bankruptcy filing. If you’ve recently made large credit card purchases, you may need to delay filing for bankruptcy. Additionally, it may be wise to delay your bankruptcy if you’ve recently made payments to creditors or transferred assets out of your name, as the bankruptcy court can reverse these transactions.
If you are planning a move to a different state, make sure to examine each state’s bankruptcy laws. Since bankruptcy exemptions vary by state, you may be able to time your filing so you can use the exemptions of the state that allows you to keep the most property.
Speaking of exemptions, planning for bankruptcy in advance provides more time for you to carefully review your assets and understand how your state’s exemption laws will – or won’t – protect them.
Depending on the type and amount of nonexempt assets you have, you and your bankruptcy attorney can determine whether filing for Chapter 7 bankruptcy or Chapter 13 bankruptcy would be more advantageous. If you have large nonexempt assets that you would like to keep, such as a house, Chapter 13 may make more sense.
If you have liquid assets that are at risk, such as cash or money in a bank, you may be able to lower your balance by spending some of the money on necessary purchases – so long as it is done in good faith (and not excessively). Your bankruptcy attorney can help you understand the line between appropriate exemption planning and bankruptcy fraud.
Make Necessary Budget Changes
If you qualify for Chapter 7 bankruptcy, you’ll be able to stop making payments on debts included in your bankruptcy filing, such as credit card and medical bills. Advance planning gives you time to develop the best strategy for distributing your newfound savings – for instance, to non-dischargeable debts like student loans or to a much-neglected retirement account.
If you’ll be making payments on debt under a Chapter 13 bankruptcy repayment plan, making a budget now will give you the best chance to successfully complete your case – and have any remaining debt discharged. Your bankruptcy lawyer can help you understand how Chapter 13 payments are calculated so that you have a realistic idea of what you’ll be paying each month, and can budget accordingly.
Wondering if bankruptcy may be the answer to your debt woes? Learn everything you need to know about bankruptcy before you begin the process of filing when you sign up for a free personal debt evaluation. At DebtStoppers, our experienced bankruptcy attorneys can identify whether bankruptcy is the best solution for you. If and when you do decide to file, we can ensure you find the debt relief you deserve.