Prebankruptcy Planning

By Daisy Rogozinsky
/
June 13, 2022

Debtors planning to file for bankruptcy are advised to take certain prebankruptcy planning steps to help them properly and successfully file for bankruptcy. In this article, we define the term “prebankruptcy planning” and offer some suggestions for it. 

Key Takeaways

  • Prebankruptcy planning is the process of preparing to file for bankruptcy
  • Some prebankruptcy planning tips include retaining legal counsel, listing all of your property and creditors, and learning which property you can exempt

What Is Pre Bankruptcy Planning?

Prebankruptcy planning is all of the planning that a debtor may do to help prepare for the process of filing for bankruptcy.

There are a few things that a person can do as part of prebankruptcy planning including:

  • Learning about and understanding the different types of bankruptcy 
  • Selling property
  • Seeking legal counsel

Prebankruptcy Planning Tips

Below are some tips for debtors in the pre-bankruptcy planning phase. 

Speak to a Bankruptcy Lawyer

In almost all cases, bankruptcy debtors will be represented by an attorney who can help them handle bankruptcy laws, processes, and hearings. It’s strongly encouraged for every debtor to have qualified legal representation. Lawyers can help you understand whether or not filing for bankruptcy is your best option, determine which type of bankruptcy is right for you, and help you navigate the entire bankruptcy process from beginning to end.

Do Not Try to Hide Property

When you file for bankruptcy, you must turn your non-exempt property over to a bankruptcy estate to be sold off to pay your creditors. Many debtors find it tempting to give property away to family or friends in order to keep it out of their bankruptcy estate. This is considered to be fraudulent and can lead to you having your case dismissed and facing criminal charges. For this reason, it’s important to be totally honest in the bankruptcy process. 

List All of Your Creditors

The purpose of bankruptcy is to provide debtors relief by discharging most of their debts. If you forget to list one of your creditors, the debt you owe them may not be discharged, making it important to list all creditors without exception. 

Be Careful About Your Purchases

All of the purchases that you make within the six months prior to filing bankruptcy will be carefully scrutinized by your bankruptcy trustee, who is checking to make sure that you didn’t make any purchases while you were already insolvent without any intention of ever paying back your debt. 

Don’t Prioritize Certain Creditors

Debtors cannot choose to pay certain creditors while not paying others, especially if that creditor is in some way related to you or benefits from your preferential payments. If you are found to have made a preferential payment, you may have to return that money to your bankruptcy estate.  

Exemptions

Certain types of property required for living daily life such as clothing and home furnishing are considered exempt and will not be seized and sold off when you file for bankruptcy. It’s important to go over everything you own with your lawyer to see what you can claim as exempt and keep for yourself even as you file for bankruptcy.

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