Not everyone who is struggling with debt needs to file bankruptcy. But there are a number of reasons why someone may consider it. While medical debt tops bankruptcy cases in the US, credit card debt, mortgage debt, and a failed business are other common motivators for filing. If you fall under one of these categories and decide filing is the right decision for you, your next decision will be: when? Here’s why timing matters when filing for bankruptcy.
Analyzing your Situation
Filing for bankruptcy is a serious matter. And once it’s filed, it’s unlikely a court will dismiss it for any reason. That’s why it’s crucial to understand the timing of filing to ensure the best possible outcome for you case.
We recommend starting by making a list of what you owe and what income/assets are available to you that could pay it off. You have two categories of debts: secured and unsecured. Secured debts are those attached to specific property items – like a mortgage or car loan. For this reason, they can also be taken away by a creditor if you fail to make payments. Conversely, unsecured debt is not associated with a particular item – like medical bills or credit cards.
It’s important to note that bankruptcy will generally not eliminate debts for student loans, alimony, child support, or taxes.
When It’s Best to File Immediately
More often than not, creditor calls will only increase in frequency and aggression as time passes, which no one wants to deal with. If you’re worried about your assets or property being seized by creditors, here are a few reasons you’d want to file for bankruptcy right away:
- You Want to Stop Litigation
If a creditor is suing you, filing for bankruptcy can stop the lawsuit instantly. It’s smart to file before the creditor gets a judgement against you so they don’t assume greater rights to your property
- You’re About to Start a Higher-Paying Job
Your income will determine if you will be able to file for Chapter 7 bankruptcy or not. The court will use your monthly income over a six-month period to make a decision. If you’re about to start a higher-paying position, it’s in your best interest to file before you do.
- Your Home is Going into Foreclosure
Filing will stop the foreclosure process and give you more time in your home. It’s only temporary, however, unless you can quickly catch up on payments or establish some sort of repayment agreement with your lender.
- You’re Being Evicted
You can stop your eviction proceeding if the landlord has yet to obtain judgement. But similar to foreclosure, it will likely only be temporary
- Your Car is Being Repossessed
Bankruptcy will delay your repossession, which can help you catch up on payments, but you will need to maintain these payments to keep your vehicle in the long run.
When It’s Best to Wait to File
With debt comes stress. And sometimes people just want to file right away to relieve the pressure. But in some cases, it pays to hang in there. In others, you may not have a choice. Here are a few of those situations:
- You Recently Took a Pay Cut or Lost Your Job
Like we previously mentioned, Chapter 7 bankruptcy is based on your financial need, so you will have a better chance of eligibility if your income is lower, or non-existent.
- You’re Expecting More Debt
If you’re expecting more debt in the near future, it may benefit you to delay the process. While you can make multiple filings, each will have strict waiting periods between charges. And any debt you incur after filing is not included in your bankruptcy, so waiting will allow you to include these additional expenses.
- You Want to Modify Your Mortgage
Bankruptcy can help you create a clean slate, but if you were hoping to change the terms of your mortgage, it can also rob you of your negotiating ability with lenders. If possible, you should wait until after you establish your new mortgage.
- You’re Moving to a Different State
This only helps you if that state has more favorable exemptions. By delaying until you’re settled in your new residence, you may be able to keep more of your property and assets depending on those state laws.
- You Recently Splurged
You cannot eliminate a debt for a luxury item worth more than $650 from a single creditor if purchased within 90 days of filing. So if you recently treated yourself to something nice, but want that included in your debt, it’s best to wait until those 90 days have passed.
If you’re facing some conflicting timing issues, it’s best to get the counsel of an experienced bankruptcy attorney. Our team is here 24/7 to answer your questions, so contact us today to evaluate your unique situation and make the best financial decision for you.