Making the choice to file for bankruptcy can be a difficult one, but once you have decided, you then have to figure out the best time for file. Chances are, if you are filing for bankruptcy, you need help and relief as soon as possible – now and not later. However, it is beneficial and important to file at the right specific time. Below are some scenarios and the best time to file while going through those situations.
Opportunity to Modify a Mortgage
These days, many people file for bankruptcy to delay a foreclosure. While bankruptcy can be a good solution in this situation, many people file much earlier than they need to, which makes it more difficult to obtain a mortgage modification. It is possible that while in a bankruptcy case many lenders will refuse to enter into or continue negotiations over your mortgage. Because your bankruptcy will cancel the promissory note part of your mortgage unless you reaffirm the mortgage in the bankruptcy – and there won’t be anything left to negotiate (but keep in mind that the mortgage lien on your home will not be eliminated). However, once a bankruptcy is completed and a home is reaffirmed / retained – most lenders will resume offers to modify a mortgage. It is even discussed as a part of the bankruptcy process in many courts. If you might want to seek a mortgage modification in the very near future, you probably should avoid bankruptcy until you are sure about all your options and the timing.
High Income, Job Loss or a New Job
If you plan to file a chapter 7 bankruptcy then you will be required to take what is known as the means test, which is how the court determines your eligibility to file chapter 7 by determining your income, if your income is too high you will have to file a chapter 13 bankruptcy, where you will be required to pay back your debt. If your income has dipped recently because of a pay cut or layoff, you can often become eligible for Chapter 7 by simply waiting a few months. Once several months of decreased income are figured into the means test, your average income over the past six months may be low enough to qualify. Do not make the mistake that many people do and wait to long to see an attorney after a job loss – or after finding new good paying employment. See a bankruptcy attorney as soon as it appears that a bankruptcy case might be necessary.
Property You Want to Keep
You may have property that you could lose in a chapter 7 bankruptcy if you file now, but that you could keep if you wait for a bit, or at least until you have time to sell and use the proceeds. For example, could be expecting a significant tax refund of several thousand, you would be required to hand it over to the bankruptcy trustee if you receive it shortly after you filed bankruptcy. However, if you wait until you receive your tax refund and spend it over a few months on necessities, and then file for bankruptcy, you would have the full benefit of the refund. Waiting can also be beneficial in the case of exemptions, say you want to keep a car that is valued at $10,000 but exemption laws only allow filers to keep vehicles valued up to $5,000, if you wait a bit the car’s value may go down enough that the difference will not matter in the bankruptcy case. If you have non-exempt assets that the trustee is able to take and liquidate, you might be able to sell those assets and spend the proceeds on necessities, this way you are receiving some benefit from those assets – and may even be able to avoid filing bankruptcy in the first place. However, do not liquidate exempt assets such as retirement accounts, a car, or a home without first speaking with an attorney. It is often not worth it to liquidate important bankruptcy exempt (protected) assets to pay off unsecured debts or secured debts for things you do not need.
Possible New Debts
If you believe that you will be incurring necessary new debts in the near future, it might be a good idea to wait a bit before filing for bankruptcy. It is important to remember that chapter 7 bankruptcy might only discharges debts you have had for more than a specific time before filing (discuss this complex issue with an experienced bankruptcy attorney). Any debts that you obtain after the initial bankruptcy filing date will not be included in the bankruptcy discharge. For example, if you have a necessary medical expense such as surgery coming up, you might want to wait until after your surgery, that way that medical debt is included in your bankruptcy petition should you have to file.
