The rationale behind bankruptcy procedure is to allow you to avoid or repay, at a level you can pay for the debts you owe and give you a new start. You are allowed to keep significant assets and property when you file any type of bankruptcy. In a Chapter 13 bankruptcy, you keep everything you own with no risk of losing any assets. There are limitations to the amount of assets you can protect in a Chapter 7 bankruptcy. This varies from state to state. In most states, you are able to protect your home equity, retirement benefits, tools of the trade, etc.
Pre-bankruptcy planning is the transferring of non-exempt assets into exempt assets. This practice is not illegal or improper; in fact, bankruptcy Code legislative notes specifically permit this type of activity. You can determine what you will be able to protect before you file for bankruptcy. You can pre-plan your asset structure in order to maximize the amount of assets you can protect.
If you have secured debts, such as car loans and home mortgages, you are allowed to continue to make these payments in order to keep the car or the home. Alternatively, you can wipe out these types of debts, but you will be forced to give up the secured car or home.
Some decisive factors for pre-bankruptcy planning include:
- the amount of the transfer to exempt property;
- the proximity to the bankruptcy filing;
- whether the conversion to exempt property involve newly acquired fund or previously secured property.