How Does Pre-Bankruptcy Planning Save Me Cash?

One of the most important things that a debtor needs to understand about bankruptcy is that it is a financial tool and like with any financial tool, it needs to be incorporated into their overall financial plan.  That’s where pre-bankruptcy planning comes in and either saves the debtor money or puts the debtor at risk for a dismissal of their case or even imprisonment.

Here’s what you need to know:

Bankruptcy offers generous exemptions on both the federal and state level.  Exemptions are basically assets that cannot be touched by creditors in the bankruptcy case.  For example, your homestead can be exempt so that no creditor can force you to sell it to satisfy payment for a debt.  When you use pre-bankruptcy planning effectively, you will take moves to maximize the use of these exemptions.  But be careful, if your bankruptcy planning moves are perceived to be an effort to defraud the bankruptcy court or creditors you could face a bankruptcy case dismissal or even bankruptcy fraud charges.  This is why it’s important to work with a bankruptcy attorney so that you can make the right moves.

Below are a few examples of pre-bankruptcy moves that could be allowable:

  1. Paying your rent or mortgage in advance before filing bankruptcy.
  2. Paying for food and utilities in advance before filing bankruptcy.
  3. Paying for medical supplies for yourself or a dependent before filing bankruptcy.
  4. Paying for your income or property taxes before filing bankruptcy.

And while these pre-bankruptcy moves could be allowable by a bankruptcy trustee, the debtor must be careful that of their payment timing and amount.  That’s why working with a bankruptcy attorney during the bankruptcy planning stage is essential to staying on the right side of the law.