When it comes to filing a Chapter 7 bankruptcy petition, one of the most important things to consider is timing: When is the right time to file? There are several advantages to filing quickly, especially when creditors are knocking at your door. But, there are just as many reasons to take it slow.
Reasons to File Quickly
Sometimes, it's better to file for bankruptcy immediately. Keep in mind that you must receive the required credit counseling within 180 days before your bankruptcy case is filed.
Filing quickly might be necessary if:
- You urgently need the automatic stay to stop collection and repossession activities, utility shut-offs and any state court proceedings against you
- You plan on acquiring nonexempt property - like a vacation home or valuable collectibles - some time after the filing date. Filing immediately protects it from the reach of creditors because it isn't in your possession at the time you file
Timing of Certain Transfers
A major reason to delay a bankruptcy filing is that it might affect certain property or asset transfers you make, and so it may affect your overall case. For instance, if you transfer property and then, soon after, file for bankruptcy, a bankruptcy trustee can set aside or void these transfers. The amount of time that passed after transferring property is important!
The trustee can set aside or void the following transfers if you file too soon:
- You intentionally transferred, destroyed or mutilated property within one year of the filing to defraud or cheat your creditors
- You made payments to some creditors but not to others within a prescribed time period
- You fraudulently transferred property within two years of the bankruptcy filing
- You purchased luxury goods and services within 90 days of filing for bankruptcy
When a transfer is set aside, the trustee may take the property back or demand payment for its value from the person you transferred it to. The property or money then can be used to pay off your creditors.
Other Reasons to Delay Filing
Other than timing transfers correctly, there are other reasons to delay filing for bankruptcy, such as:
- When you expect more debts, such as medical bills or other necessities, you should wait until after you have incurred the debt so it can be included in the discharge order
- When you want to make sure certain creditors get paid, like friends and family. Just make sure to wait long enough so the trustee can't set aside the payments
- Until the foreclosure of your home is imminent or until you're near to being evicted - the bankruptcy's automatic stay will stop the foreclosure and the eviction, at least temporarily
- Waiting to make sure all credit card charges can be discharged
- Waiting to make sure the maximum amount of unpaid income taxes can be discharged
Taking some time to maximize the amount of property you can claim as exempt can help, too. It reduces the amount of property the trustee may take to pay your creditors. These exemption tips should help:
- Filing a homestead deed in order to claim the state homestead exemption, if eligible
- Buy household goods, clothing, life insurance and other exempt items up to state exemption limits
- If you have nonexempt equity in your home, think about taking out a second mortgage in the amount of that equity and use the money to buy exempt property
- If you plan on getting a tax refund, wait until you received the check and spend the money on exempt assets
- If you anticipate acquiring property by a will, inheritance, divorce property settlement or life insurance as a beneficiary, it may be advisable to temporarily change those provisions or to rearrange the marital settlement so that the property can't be considered as part of your nonexempt assets
Questions for Your Attorney
- Should I wait until after our baby is born to file bankruptcy?
- Should I file for bankruptcy if I recently purchased an expensive new car?
- Should I wait until I undergo major surgery before filing for bankruptcy?