Pre-Bankruptcy Dos and Don’ts

Posted by:

A little pre-bankruptcy planning can go a long way to make the bankruptcy process less painful. Struggling debtors are usually so busy treading water, dodging calls from collectors and trying to juggle their finances, that they don’t often think about the practicalities of a bankruptcy filing and tend to make major mistakes along the way.


  • Continue making payments on vehicles you plan to keep.
  • Reduce the amount of future income tax refunds. (Federal and state tax refunds are routinely taken in Chapter 7 cases and may affect plan payments in Chapter 13. If you expect to get an income tax refund, reduce your withholding so that you do not get a refund.)
  • Be proactive in protecting your resources and getting expert guidance from a certified bankruptcy lawyer.


  • Reduce the withholding tax so much that you will have a big tax bill to pay.
  • Move property you own into someone else’s name to avoid repossession by creditors. This kind of transfer is considered fraud and will negatively affect a possible discharge.
  • Pay back money (over $600) lent by relatives or business associates. Payment of $600 or more to an “insider” within one year before you file bankruptcy is considered a preference and may be recovered and used to pay your creditors.
  • Borrow money on your home to pay bills.
  • Borrow from or withdraw from your 401k, IRA, or qualified savings and retirement plans to pay bills. These types of funds may be exempt from bankruptcy. If you don’t deplete these funds you may be able to draw on them after bankruptcy.

Seeking professional assistance to protect your assets is a proactive measure to safeguarding your financial future.  Whether facing creditors outside of bankruptcy or contemplating a future bankruptcy, the legal experts at Cossitt Law know how to use all the various tools to help design an asset protection strategy and/or bankruptcy plan to meet your specific needs.

Contact Cossitt Law at 406-752-5616 for bankruptcy advice. With decades of bankruptcy experience, we are experts in making the process as painless as possible.


Add a Comment