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Planning for Bankruptcy

Filing for bankruptcy is usually a response to a financial crisis. When you are responding to a financial emergency, it may be impossible to plan. We have no choice but to deal with your financial situation as it is and try to make the best of it.

Sometimes, your financial problems have been around for a long time. Things are bad but there’s no immediate crisis. Many clients tell us they are current on all their bills and have “perfect credit” but they will never be able to pay off their crushing debt.

In these circumstances, planning can be important.

Frequently Asked Questions about Planning for Bankruptcy

Can I get rid of my property so that it doesn’t get used to pay my creditors?

No, that would be a very bad idea. However, there are some creditors who have priority in bankruptcy. These are the kinds of creditors who hold debts that you can’t get rid of in bankruptcy. It’s a good idea to think about paying priority creditors if you have extra cash which you don’t want to be part of your bankruptcy.

What kind of debts are priority debts that I might want to pay?

Priority debts include debts for income taxes due within the past three years. Taxes you were supposed to pay for others like sales tax or withholding tax won’t be discharged in bankruptcy. You might consider paying fines and penalties you owe to government units – these are not discharged in bankruptcy either. Of course, child support and alimony are domestic support obligations. You have to pay these no matter what, so you might as well pay them too.

What if I don’t have priority debts that I might want to pay?

You might want to consider upgrading your health or life insurance. This is good for your family and will also reduce your disposable income for purposes of the means test. You might as well take care of medical or dental needs. Nobody will ever criticize you for taking care of your health.

I’m about to get a big income tax refund

That’s a good thing. You can use this to help with your living expenses. You can use this to help pay for your attorneys’ fees for your bankruptcy case. It would be not such a good thing to have a big income tax refund which your bankruptcy trustee could take away from you. Use your income tax return wisely. Consult with us so you use it in the right way.

I paid back a big debt to someone in the past 90 days

It might be a good idea to wait until 90 days from the date of the payment passes. This way, the chapter 7 trustee can’t sue the person you paid to get the money back. This is called an “avoidable preference”.

I paid back a big debt to my mom in the past year.

It might be a good idea to wait until a year passes from the date you paid back that debt. An avoidable preference to a friend, family or relative is called an “insider preference” and it can be avoided for up to a year.

I gave away property to a trust for my children

This can be avoided by a trustee for up to 4 years and maybe more. We have to see if you had more debts than assets when you did this or if you did this to avoid creditors. Protection from possible creditors is legitimate. Avoidance of actual creditors may not be.

I’m about to lose my job

This might have a bearing on your eligibility for chapter 7 and the means test. Tell us about it.

I’m about to get a new job or a promotion.

This might result in your having greater disposable income. This will also have a bearing on whether or not you are eligible for chapter 13. Tell us about it.

I might be getting a big inheritance

Money you inherit within 180 days of filing a bankruptcy can be used to pay creditors. Tell us about this. We can’t control everything. But we can help you when we know what your situation is.

I need to buy a new car – my old car is a heap of junk

If your credit is adequate and you plan on keeping the car after bankruptcy, it might be to your benefit to purchase and finance that car before you file your bankruptcy case. Don’t be extravagant. Get a car you’ll be able to afford. You can’t take on new debt which you can’t afford to pay or which you don’t intend to pay.

You will have many more questions. Don’t worry. At Lakelaw, we have answers for your most challenging bankruptcy problems.