If you make a plan before you file bankruptcy you’re more likely to end up coming out on the other side much better off.
Even if you’re just dipping your toe in the water it’s better to take some time and learn the rules and lingo of bankruptcy. After all, we want to maximize the amount of relief available.
If you don’t plan ahead, you’ll have fewer options than you might otherwise have had.
Below, I provide an essential checklist for you to reference before you file.
What’s your income?
The means test determines whether you have access to a Chapter 7 or if you’re relegated to filing a Chapter 13 (Thanks Joe Biden).
The means test looks at your gross income (not take home) and any other regular contributions from others to your family’s cost of living.
You’ll need to look at paystubs, commission checks, stock dividends, even child support and any gig jobs you may have. We’ll compare all of that to Georgia’s median income ($58,700 in 2019) to see if you qualify for a 7.
FILE. YOUR. TAXES
Your returns can tell you, me and the trustee lots of information.
Do you withhold too much from your income?
Do you not withhold enough and have to pay?
Taxes are a deduction on the means test and can be very useful if your income is above the median. Same if you operate a business. All of these things help with the means test.
Exempt Income
Not everything counts in the means test. SSI is exempt from creditor claims and is excluded from the means test.
Some military pensions, VA disability and other pensions are exempt as well. We’ll need statements from them to determine their exemptability.
Set aside funds for attorneys fees
If you need to file, you’ll need a lawyer.
I’m not just saying that because I’m a lawyer.
Bankruptcy was made endlessly more complicated by the Bankruptcy Abuse Prevention and Consumer Protection Act otherwise known as (BAPCPA).
Again, thanks Joe Biden.
This so-called “reform” stuffed the bankruptcy code with negative consequences and tons of gotcha clauses. You can no longer safely file bankruptcy by yourself without exposing yourself and your assets to significant risk.
Don’t pay off debts
Trying to tidy up your finances before you file can open you up to lots of risk. You run the risk of having the recipient of the money getting sued by the bankruptcy trustee. The other risk you take is that you’ll end up paying off a debt that will go away as a result of the bankruptcy.
Additionally, the means test pops up again. Some debts are actually good deductions on the means test. If you inadvertently pay off one of those you could cause your means test to fail. It’s better to not eliminate potential advantages.
Replace Aging Cars
Bankruptcy can mean that credit costs more in the short term. If you think you’ll need a new car, it would probably be better to buy one before you file than after.
You’d be shocked at how good a deal you can often find just before filing bankruptcy, despite your credit risks. Check the terms of the loan though, you can’t discharge the car loan and keep the car.
The means test also plays a role here as well. Payments on a secured vehicle can be deducted from the means test but hear me out on this; be 100% honest on your credit application and absolutely don’t buy a Mercedes when a Kia will do the job.
Plan for the Future
Before you file, you need to know what your goals for the future are. Do you want to keep your house or are you planning to move anyways? Are you going to try to keep your business up and running? Do you have a timeshare you want to get rid of? What do your future career prospects look like?
Planning for the long term can weigh on the route you take in bankruptcy and telling me about those plans can help guide the advice I give you.
In the end, Bankruptcy is an extremely useful tool that helps out hundreds of thousands of Americans each year. If you’re ready to do more than just dip your toe in the water, call me.