Kentucky Bankruptcy Law

Counsel with Care

Planning in case a bankruptcy is likely

There are a number of provisions in the bankruptcy code that prevent debtors from hiding or inappropriately transferring assets. However, there is nothing that prevents debtors from doing careful planning within the framework of the law. Sometimes a debtor (or potential debtor) sees their financial situation declining and have the foresight to recognize that bankruptcy might be necessary down the road.

When there is sufficient warning that a bankruptcy is likely months down the road, then one area of pre-petition planning that the debtor can engage in revolves around how debt is repaid. This requires an understanding of what happens with different kinds of debts. For example, income tax debt incurred within three years of filing bankruptcy is usually not discharged in a bankruptcy. Therefore, repaying income tax debts instead of regular unsecured debts is smarter. The challenge, though, is that some unsecured creditors will rush to court to obtain judgments and garnish wages.

Another consideration with repaying income tax debt is that Kentucky income tax debts should be paid ahead of federal tax debts. This is because Kentucky Department of Revenue is more aggressive in collection activities that the Internal Revenue Service and because Kentucky tax debt accrues at 5% interest while federal tax debt accrues at 4% interest.

This is generalized information and it is best to consult with a bankruptcy practitioner early on to come up with the pre-petition planning that fits your situation.

September 4, 2013 Posted by | Bankruptcy, Chapter 13, Chapter 7, Plan, Planning, Pre-filing planning | , , , , , , , , , | Leave a comment