If you tell someone you are planning your strategy to apply for bankruptcy, it would sound rather suspicious. Who in the right mind would plan to go bankrupt ahead of time? The truth is that if you are facing financial difficulties and bankruptcy is your sole option, then you do want to plot your bankruptcy accordingly. You can even plan when is a better time to apply bankruptcy, whether you will be filing Chapter 7 bankruptcy, or Chapter 13 bankruptcy. Planning your strategy in the pre-bankruptcy stage should include:
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Ascertain what debt is dischargeable before filing for bankruptcy
In the case of Chapter 7 bankruptcy, where unsecured debt will be dismissed. If you have unsecured debt like credit card bills, why would you want to remain paying for it? Instead, you can/should use that money to pay down the non dischargeable debt such as your car loan payment. It will become clear to you when we can quote an example with some real numbers. For the purpose of this discussion, you have $15,000 of credit card debt and a mortgage on your house. If you are reasonably certain that you will seeking bankruptcy protection, why not stop paying the credit card bill and either keep the money for some other use, or use that money to pay down the mortgage? The credit card balance in most legal circumstances will be dischargeable, whereas the mortgage is a secured loan, which will not be dismissed. So the common idea is to maximize your dischargeable debt while minimizing your non dischargeable debt prior to filing for bankruptcy.
Credit card usage can attract suspicion of fraud in the pre-bankruptcy stage
You should be prudent when using your credit cards if you know you are going to be filing for bankruptcy. By using your credit cards to buy unneeded and expensive toys such as the new Apple iPad, you can introduce suspicion into the mind of the bankruptcy trustee. You do not want the bankruptcy trustee to think there is foul play with your bankruptcy case. If the trustee suspects you have incurred debt just to have it dismissed during the bankruptcy procedure, it can bring about some severe issues. One of the limitation of discharging credit card debt is that you cannot have purchased luxury goods within the past 60 days, or withdrawn $1K using cash advance from the credit card. If you did so, the bankruptcy court has the choice to not discharge these debt. In order for your bankruptcy case to be discharged and be debt free, all non dischargeable debt will need to be paid for in advance.
If you knowingly charge expenses on your credit card that you will not be paying for, you will be committing bankruptcy sham. Bankruptcy fraud is punishable by law with fines, or worst yet dismissal of your case.
Pre-bankruptcy procedure should include having the maximum exemptions allowed
Asset exemption is a good thing in bankruptcy as it allows you to keep the asset after the entire bankruptcy process is completed without having to pay for it somehow. Once an asset has been classified as exempt, the bankruptcy court cannot reclaim it from you to be sold off in the auction to pay off the creditors.
Non-exempt assets can be reclassified as exempt given certain criteria are satisifed. Consult your bankruptcy lawyer in order to keep the maximum you are allowed under the law. There are certainly some things you can do in your pre-bankruptcy preparation. You can choose to keep some of your assets if you can plan your pre-bankruptcy steps carefully. It is not illegal to plan your bankruptcy every step of the way. Planning is indeed legal as long as you are operating inside the limit of the bankruptcy law. Pre-bankruptcy and Post bankruptcy procedure is not difficult, but you should be aware of it at all times.
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