Can I Plan for Bankruptcy?

It is perfectly proper to engage in pre-bankruptcy planning to maximize your allowable exemptions. Your planning, however, should be done with the guidance of a knowledgeable bankruptcy attorney.

Unfortunately, many clients tell me that they sold their car for $1 to their girlfriend, or they signed a quit claim deed to their property to their sister shortly before coming to see me. These types of attempts at protecting assets often result in the needless loss of the very property they were trying to save.

Other times people borrow from their family to catch up payments or to pay off a particular debt. They use their income tax refund to pay their family back followed by filing for bankruptcy. This type of pre-bankruptcy activity often results in a Chapter 7 trustee recovering the money paid on the debt AND recovering the tax refund money paid to the family.

An example of proper pre-bankruptcy exemption planning is as follows: Say you have $6,000 in cash in the bank, a car on which you owe more than its value, and furniture worth $1,000. Depending on your exemptions, a Chapter 7 trustee could take up to $4,950 of your cash (and perhaps the entire $6,000) and use it to pay creditors. What you could do instead is, using the cash that you have in the bank, purchase a used car for $3,225, purchase $1,000 of furniture you need for your house, and use the remaining $700 towards repairs needed for your home. Then, you are left with an exempt car (with no car payments-you can walk away from the one that you are upside down on), exempt furniture, and $1,075 in exempt cash in the bank. The trustee now has nothing to take.

Remember, while it is perfectly acceptable to engage in pre-bankruptcy planning to maximize your assets, it is NOT acceptable to defraud your creditors, or engage in actions that could constitute “bad faith”. You CANNOT “hide” your assets. Please use the advice of an informed bankruptcy attorney.

Does the Bible Tell Me So?

Many times when people come to see me about debt relief, they don’t want to file bankruptcy. Bankruptcy is seen as an indication that they are “bad” or that they are “unjust” or even “unchristian.”

I am not a Biblical scholar nor am I theologian. However, in Deuteronomy 15:1-3, the Bible does reference debts and the forgiveness of debt. Deuteronomy establishes many concepts that have influenced religious thought and life of both Jews and Christians down through the ages. Moses is generally considered the original author with possibly Joshua authoring the final chapters. Verses are from the King James Version.

“1 At the end of [every] seven years thou shalt make a release. 2 And this [is] the manner of the release: Every creditor that lendeth [ought] unto his neighbour shall release [it]; he shall not exact [it] of his neighbour, or of his brother; because it is called the LORD’S release. 3 Of a foreigner thou mayest exact [it again]: but [that] which is thine with thy brother thine hand shall release;"

The Sabbatical year was also to be a time of release (Deut 15:1) but only in one specific aspect - that all debts between the children of Israel were to be cancelled (Deut 15:2), though a foreigner’s debt was not annulled (Deut 15:3). That the Scriptures teach a canceling of outstanding debt and not just an annulment of the interest on the debt is clear from Deut 15:4-11.

"4 Save when there shall be no poor among you; for the LORD shall greatly bless thee in the land which the LORD thy God giveth thee [for] an inheritance to possess it: 5 Only if thou carefully hearken unto the voice of the LORD thy God, to observe to do all these commandments which I command thee this day. 6 For the LORD thy God blesseth thee, as he promised thee: and thou shalt lend unto many nations, but thou shalt not borrow; and thou shalt reign over many nations, but they shall not reign over thee. 7 If there be among you a poor man of one of thy brethren within any of thy gates in thy land which the LORD thy God giveth thee, thou shalt not harden thine heart, nor shut thine hand from thy poor brother: 8 But thou shalt open thine hand wide unto him, and shalt surely lend him sufficient for his need, [in that] which he wanteth. 9 Beware that there be not a thought in thy wicked heart, saying, The seventh year, the year of release, is at hand; and thine eye be evil against thy poor brother, and thou givest him nought; and he cry unto the LORD against thee, and it be sin unto thee. 10 Thou shalt surely give him, and thine heart shall not be grieved when thou givest unto him: because that for this thing the LORD thy God shall bless thee in all thy works, and in all that thou puttest thine hand unto. 11 For the poor shall never cease out of the land: therefore I command thee, saying, Thou shalt open thine hand wide unto thy brother, to thy poor, and to thy needy, in thy land.”