Bankruptcy Strategy
While bankruptcy fraud is illegal, planning your bankruptcy is a good way to ensure that you achieve the best possible outcome in your case. Many variables can affect your case, from the time you file your bankruptcy to the chapter you choose, so knowing your options in advance can help you protect your assets and reach your bankruptcy discharge.
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Filing Chapter 7
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Chapter 7 bankruptcy is typically the fastest and most cost-efficient type of bankruptcy for most debtors. However, for others it may not be an attractive option at all. When you file Chapter 7 bankruptcy you essentially turn over all your assets to the court for distribution to your creditors. Although you may protect certain assets, as determined by the state you live in, if you have any significant property you will most likely lose it in Chapter 7. As a result, filing for Chapter 7 tends to make more sense strategically if you don't have much in terms of property or assets. If you properly file your Chapter 7 case you can make it to discharge in as little as three months, and without paying anything to your creditors.
Filing Chapter 13
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Even though you might be out of bankruptcy in as little as three months if you file Chapter 7, in many cases filing Chapter 13 makes for a better strategy. Instead of simply discharging your debts, a Chapter 13 bankruptcy reorganizes them so you can make one monthly payment to the court to satisfy your creditors. The court determines your payment based on your disposable monthly income, so it should be an amount you can afford. The upside to filing Chapter 13 is that you do not have to liquidate any of your assets. This is how some debtors can file bankruptcy and still have homes, cars, boats and other luxury items.
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Qualifying For Bankruptcy
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Unless you are under pressure from a creditor lawsuit or a wage garnishment, an effective bankruptcy strategy is to wait to file bankruptcy until certain factors are in your favor. For example, you can only qualify for Chapter 7 if your income is low enough based on your previous six months of income. If you have experienced a recent drop in income, you can lower your six months of average income if you wait until a few months of your lowered income are factored in to the equation. Using the math of the bankruptcy court, time can be your ally in helping you qualify. Similarly, you can only qualify for Chapter 13 bankruptcy if your debt is lower than certain levels. If you have too much debt to qualify but don't want to file Chapter 7, you can take some time to pay down the debt until it is low enough for you to qualify.
Having A Clear History
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Certain actions can prove to be stumbling blocks in your bankruptcy case, so you should wait until your recent financial history is clear before you file bankruptcy. For example, the bankruptcy court may view certain charges or cash advances on your credit cards right before you file as fraudulent, making you still responsible for their repayment. Similarly, the court may view property transfers to relatives as an attempt to hide assets from the court and dismiss your case or even file criminal charges. If any of these types of actions are in your recent past, a good strategy would be to wait to file bankruptcy.
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