Some states have homestead laws that protect you only from subsequent creditors—creditors that file claims after you file for bankruptcy. In those states, a bankruptcy filing will probably allow you to use the state homestead exemption against all your creditors, even if you file the homestead the day before the bankruptcy.

In a Chapter 13 bankruptcy case, your plan (set out by the bankruptcy court) may allow you to pay off the arrears on your mortgage or car loan, thereby avoiding foreclosure or repossession of your home or car.

The good news is that much of your property cannot be taken either to satisfy a judgment or to pay creditors in a bankruptcy filing. There are many things you can do that are perfectly legitimate and can maximize the status of your financial life when you finish the process of bankruptcy. You need to be creative and you need to know what is available. Speak to a bankruptcy attorney well in advance of filing and you will get some valuable advice in this regard.

You can do many things to prepare for bankruptcy and protect your assets in the year or even the months prior to filing. Just keep in mind that everything you do in that year will be closely scrutinized by the bankruptcy court. If you suddenly start doing things that are completely out of character, you will raise a red flag. If you do anything that can be found to be purposeful effort on your part to perpetuate fraud against any of your creditors, you will be asking for trouble. If anything is found to be tainted, your entire filing could be reversed. Your trustee can disallow anything that doesn’t appear to be above board.

But, here are some things that are perfectly legitimate to do in preparation for your bankruptcy filing and to protect your assets. You can:

• Use your liquid assets, the things you can sell, to pay off debts such a taxes.
• Pay down your mortgage in those states with unlimited or significantly large homestead exemptions.
• Take a cash advance on a credit card to pay your living expenses or your attorney if it is more than 60 days prior to filing or less than 60 days if it is under $1075. There is probably a reason for that very specific amount but we just don’t know what it is.
• Pay off credit cards having small balances so that you can keep at least one credit card for emergencies. It is most likely that a major credit card company will cancel your card anyway.
• Liquidate nonexempt items such as a boat if you are behind in your mortgage and want to reinstate it.
• Make your annual contribution to your IRA if you have one, or if you have any other exempt pension plans. That is why IRAs are good things to have. (An exempt pension plan is one covered by the federal ERISA laws, or if not, it is one that is covered by your state’s exemption list or the federal non-bankruptcy exemption list. You will have to check with your plan administrator or an attorney to find out about this.)
• Take out a life insurance policy. Now don’t get any ideas. The courts will look closely if your spouse is taking it out on you or vice versa and one of you mysteriously disappears. Then you will have greater problems than bankruptcy to deal with!