Most people shudder at the thought of filing bankruptcy. An emotional response is natural, yet it also may cause unnecessary delay. Over a short time, procrastination limits options, wastes payments, and causes asset loss. You could easily prevent these poor results by reviewing your options early using a common sense approach.
The best plans exploit the advantages of numerous financial tactics before filing and may avoid filing bankruptcy altogether. If filing later becomes necessary, a well thought out plan also maintains all Chapter 7 and Chapter 13 rights and maximizes benefits. Timing is the key to success.
As a general rule, courts look back two years to review all transactions. Trustees search for hidden assets, transfers of money to family and friends, and a wide range of prohibited transactions. They may look back for up to 10 years in some situations, most notably involving trust transactions. Nevertheless, all people who file may conduct their affairs as they see fit, including many transfers that protect and preserve assets.
The term bankruptcy planning is relative. From the perspective of debtors, a well thought out plan treads a fine line between permissible and prohibited transfers. Creditors frequently disagree. They allege violations and seek asset seizures. In most cases, the timing of a transfer determines if it complies with the law. The way transfers are completed also determine if they are allowed. The best strategies begin more than a year in advance. Exemptions are used creatively, and priority debts are minimized or paid completely. General unsecured debts are compromised, settled or ignored. Net worth improves dramatically.
Qualifying for a Chapter 7 discharge is harder today than during any time in the history of our nation. The most difficult hurdle is contained in the means test. The means test became law in 2005 at the insistence of major financial institutions. Oddly, this new law became effective just as the reckless and abusive lending practices of financial institutions created the worst economic downturn in 80 years. Many people do not believe in coincidence. In this case, when the real estate bubble broke and homeowners suffered, Chapter 7 was no longer available for many people.
The means test is calculated over the last six full months before filing bankruptcy. It measures the difference in income and specifically allowed expenses. In simple terms, if you earned too much, you cannot file Chapter 7. You also have a wide range of options to influence test results. With six months to plan, most people who file Chapter 13 could qualify for Chapter 7, if only making a few small lifestyle changes.