After making the tough decision that filing Chapter 13 bankruptcy is the best way to solve your financial problems, you have another key decision to make: When is the right time to file? There are advantages to filing quickly, but there may also be good reasons to a wait awhile.

Reasons to File Quickly

Sometimes, it's better to file for bankruptcy immediately, such as when:

  • 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. If you file after acquire you the property, it's included in your repayment plan, which likely means you'll have to repay your creditors more

Also, keep in mind you must receive the required credit counseling within 180 days before your bankruptcy case is filed. So if you need to act quickly, get moving on the counseling!

Timing of Certain Transfers

A major reason to delay a bankruptcy filing is that it might affect certain 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

If a transfer is set aside, the property or money is included in your repayment plan. That means you may have to repay your creditors more than if the property or money wasn't in your plan.

Other Reasons to Delay Filing

Other than timing transfers correctly, there are other reasons to delay filing for bankruptcy, such as:

  • If you expect more debts, such as medical bills, you should wait until after you've incurred the debt so it can be included in your repayment plan
  • 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 the maximum amount of unpaid income taxes can be included in your repayment plan. Generally, the IRS has to agree to the repayment terms set out in your Chapter 13 plan. If a tax debt comes up after your plan is confirmed, you'll have to come up with another way to repay the IRS

Exemption Planning

Taking some time to maximize the amount of property you can claim as exempt may help, too. Generally, in a Chapter 13 bankruptcy, you keep all of your property - both exempt and nonexempt. In exchange, you agree to repay your creditors. Whether your repayment plan is approved depends, in large part, on whether your creditors will receive at least as much as they would receive if you filed under Chapter 7.

The key here is your nonexempt property. If the value of your nonexempt property is too high, your plan may not be approved, or your repayments will be high So, you may want to make sure you have more exempt than nonexempt property before you file. 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 receive 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?