Often people wait until the creditors have filed suit or are foreclosing on their property to file for bankruptcy protection. I refer to the cases that are reacting to creditor action as “the hounds chasing you to the court house” cases. You can beat the hounds to the court house but it’s better to be proactive through pre bankruptcy planning then to react.
Bankruptcy is an option that should not be entered into without careful planning.
Bankruptcy is a fresh start. In order to maximize the benefit of a fresh start you need to plan before you file. There are many issues that determine the timing of your petition. Income history, creditor lawsuits, foreclosures and creditor harassment are some of the factors that govern when you should file for bankruptcy protection.
Bankruptcy planning is ethical and proper. However improper bankruptcy planning can be fraudulent and cause your case to be dismissed, or worse.
Proper planning is not fraudulent. The Bankruptcy plan must be made in "good faith". Therefore if the totality of the circumstances suggest bad faith you could be abusing the bankruptcy system. Congress did not define good faith, so each case must be examined on the totality of the circumstances. Bankruptcy Law requires the debtor to be to be honest, forthcoming, truthful, and frank. Each step in planning must be examined on its own in light of the facts specific to that particular case.