The most successful bankruptcy filings involve careful planning on the part of the debtor and their bankruptcy attorney. However, all pre-bankruptcy planning should be done carefully.
Below are a few things debtors should use caution with when planning their bankruptcy:
Quitting A Job
When a debtor files for bankruptcy, they may need to take the means test to determine if they have enough disposable income to pay their debts. The means test is based on the debtor’s previous six months of income. If the debtor quits their job or is fired from their job right before they take the bankruptcy means test, it may not accurately portray their current income. As part of their planning, debtors should only file a bankruptcy when they are relatively sure their income is stable. For example, if the debtor knows that their current job will only last six months, they might consider filing bankruptcy after that job has ended. If the debtor needs to file bankruptcy sooner, they should speak with their Dallas-Fort Worth bankruptcy attorney to determine how they can handle the income issue.
Purchasing A Car
While there are circumstances where purchasing a vehicle right before bankruptcy is necessary, it may not be in the best interests of the debtor to do so. Any car loan acquired in the 910 day timeframe before filing bankruptcy is not dischargeable. This means that the debtor is fully responsible for paying that car loan. If you need to file bankruptcy and you need a new vehicle, you might want to consider paying cash for a used vehicle. Of, if you must take out a car loan carefully consider how the loan will impact your bankruptcy and your finances after the bankruptcy discharge.
It’s a common strategy of debtors to sell assets as a way to pay off debts and avoid bankruptcy. Unfortunately, many end up needing bankruptcy anyway and some of the asset sales may be voided by the trustee if they are viewed as illegal transfers. For example, selling a home to a relative at a deep discount a year before filing bankruptcy might be viewed as an illegal transfer of assets if the bankruptcy trustee determines that you did not receive a fair exchange of value for the property. If you are considering bankruptcy, don’t sell any assets until after you discuss it with your bankruptcy attorney.
Paying Off Debts
While paying off as many debts as possible may seem like a “no-brainer” it can become a problem if one creditor is favored over another. Debtors planning their bankruptcy filing should avoid making any large unusual payments to any creditors, including family and friends who are owed money. If a bankruptcy trustee determines that pre-bankruptcy loan payments showed preferential treatment to one creditor over another, they might void those payments and demand that the money is returned to the bankruptcy estate.