If you're thinking about filing for bankruptcy, you should be aware that the timing of your application might have a significant impact on your cause. In some cases, waiting for some time before filing for bankruptcy is logical since you can retain more assets, erase some debts, or avert problems with your trustee. However, different elements can affect the timing of your bankruptcy petition in different ways as we are going to discuss further in this blog.
What Does it Mean to File For Bankruptcy?
You become a debtor once you owe anyone money. The companies and individuals to whom you owe the money are referred to as your creditors. "Bankruptcy" is a government regulation that offers an orderly system for debtors to be protected and creditors to be treated fairly. Although bankruptcy isn't for everyone, it can be quite useful in resolving financial problems.
In most ways, declaring bankruptcy in California is similar to declaring bankruptcy in other states. The bankruptcy system is governed by federal laws rather than state laws in California, and it functions by dissolving contracts that are there between you and your creditors, allowing you to have a fresh start.
Bankruptcy can be classified into five main categories. However, Chapter 7 and 13 bankruptcy are the most popular types of bankruptcy. Typically, when individuals discuss declaring bankruptcy, they're referring to Chapter 7. Chapter 7 bankruptcy allows you to "discharge" all or nearly every one of your debts payable effective from the date that you declare bankruptcy, with no further payments required.
The term "discharge" refers to the fact that you are no longer legally obligated to repay the debt. After you petition, the process usually takes about 90 days. Some of your assets could be at stake in a Chapter 7 bankruptcy, and other debts may also not be discharged. Additionally, certain property transfers made before you declared bankruptcy may also be reversed.
A Chapter 13 bankruptcy is a 3 to 5-year process in which a payment schedule is established. With limited exceptions, Congress recently stretched the repayment schedule to 7 years due to COVID-19. Instead of having your earnings garnished or losing assets to foreclosure, Chapter 13 bankruptcy protects your possessions and allows you to settle certain bills like taxes, child support, vehicle payments, but also housing mortgage debts borrowed for more than a 3 to 5-year term, or even 7 years. Here, you have to consent to make monthly payments of your disposable earnings to pay a part (or all) of the debts in return for this enhanced advantage. When credit counseling or Chapter 7 aren't an alternative, Chapter 13 is frequently used as a fallback.
The Best Time to File for Bankruptcy
When should I file for Chapter 7 bankruptcy? This is a popular question among debtors. Often, bankruptcy can't be filed at a particular time of year because it occurs as a result of significant, unforeseen life events, like sudden medical expenditures. However, there are several techniques to time declaring bankruptcy so that you can place yourself in the safest situation possible.
The moment you decide to file for bankruptcy is mostly determined by when you realized that you needed to file. It typically happens when you've exhausted all other debt-repayment options. When your expenses start piling up and you're faced with account freezes, wage garnishment, or shut-off warnings, you're probably likely to contemplate Chapter 7 bankruptcy.
In most scenarios, debtors are advised to declare bankruptcy immediately after consulting with their bankruptcy attorneys. However, other times, they can be advised to delay the filing. Many factors are in play when deciding the right time to declare bankruptcy.
Factors that Affect the Right Timing to Declare Bankruptcy
Here are some things to keep in mind that will help you pick the best time.
The Age of Tax Debts
Despite popular belief, income taxes can be discharged in bankruptcy if certain conditions are met. However, a few of these conditions are attributed to their age. An income tax debt should have been evaluated no less than 240 days before making your bankruptcy petition and has to be due for a minimum of three years to be eligible. You should also have filed more current tax returns.
You wouldn't want to allow previous tax debts to just age because of the state's and IRS's strong collection authorities. If you delay too long, the assets may be vulnerable to liens or possibly levy seizures.
Adverse Collections Practices
Are some of your obligations on the verge of being foreclosed or repossessed? If that's the case, this may have a significant impact on your timeline. You must intervene before the foreclosure process enters certain phases if you wish to retain a car or property that is being repossessed by your lender. Bankruptcy offers an involuntary stay that puts a stop to many collection actions, giving a debtor room to get back on their feet and restate a loan.
Your Most Recent Earnings
Your income may be an issue based on the chapter of bankruptcies you wish to file. The amount of income you generate in comparison to the debts determines whether you file Chapter 13 bankruptcy, which is a repayment schedule.
If the income changed throughout the look-back phase before declaring, it could appear that you do not generate enough to keep up with your repayment schedule, forcing you to go into liquidation. If, on the other hand, a loss of employment or an accident has resulted in a considerable decline in earnings, the look-back phase may be misleading, causing your repayment schedule to be more than you can currently afford.
Expected Windfalls
When you declare bankruptcy, the assets usually constitute a bankruptcy property, which the trustee appointed by the court will utilize to repay your debts with creditors according to the provisions of your bankruptcy. Any properties and cash you have on the date of filing, as well as any possessions you acquire throughout the bankruptcy phase, could be subjected to this use.
This suggests that if you intend to inherit from a sickly relative, you may be able to utilize it to repay past obligations based on when the relative dies. The trustee appointed by the court may be able to use some legal settlements. Incentives or early retirement payments may also be jeopardized based on when they are given.
Previous Financial Decisions
What financial actions have you engaged in over the last 2 to 3 years? If you declare bankruptcy quickly after making certain decisions, they may be considered adversely.
It may be misunderstood as bankruptcy fraud when you have taken a cash advance from your credit card or bought a major luxury buy within 6 months. Alternatively, if you transferred a major asset - like a property or car - to a close relative to shield it from your creditors, the trustee may pursue the receiver. You should be advised to delay the look-back phase in any scenario.
When Delay is Usually not in the Debtor's Best Interests
In the majority of cases, waiting and delaying to file for bankruptcy are ineffective. Debtors often assume that when they wait to file bankruptcy, they will be capable of managing their finances or finding a means to catch up. It's a noble objective, but it is unattainable for the majority of individuals who are deep in debt.
Many people have no practical chance of repaying the debts they owe, and delaying merely exposes them to bank levies, judgments, repossessions, wage garnishments, and foreclosures. When you're overwhelmed with debt, filing bankruptcy as soon as possible will put you on the road to restoring your credit score and give you a chance to start over.
When You Should File for Bankruptcy Immediately
While bankruptcy provides a new beginning and a slew of additional benefits, it is a major leap. The grounds for delaying bankruptcy often have something to do with recent occurrences. They can entail transfers made only several months before you file for bankruptcy.
If the occurrence entails transfers that you received, such as inherited property, or a stimulus check, and you're in financial distress, you must weigh the odds of it occurring against your need for debt relief through a Chapter 7 bankruptcy proceeding. If it's hypothetical and there's no certainty that it will occur, it is not a good justification to wait for it off.
Furthermore, if you're being harassed by creditors, the involuntary wait will provide immediate relief after you file for bankruptcy. You will not be contacted by the collection agent or a creditor again. There will also be no further interest or overdraft payments applied to any outstanding debts on your credit card. Wage garnishment also will come to an end.
Here are more reasons you should declare bankruptcy immediately:
You Want to Put an End to Litigation
If you are being sued by a creditor, declaring bankruptcy might put an end to the action right away. It's a good idea to file for bankruptcy before the creditor obtains a judgment against you so that they don't have further claims over your property.
You're About to Start a New Job With a Higher Salary
Your earnings will influence whether or not you're eligible to apply for Chapter 7 bankruptcy. The court will pass judgment based on the monthly earnings during 6 months. When you are about to commence a higher-paying job, it's a good idea to file for bankruptcy first.
Your House is About to Go into Foreclosure
Declaring will halt the foreclosure action and allow you to hold onto your property for longer. However, it will only be brief unless you promptly stay up to date with payments or work out a repayment plan with the lender.
You're About to Be Evicted
If your landlord has not yet obtained a judgment, you could halt the eviction process. But it will most likely be brief like with foreclosure.
Your Vehicle is Being Repossessed
Filing for bankruptcy will postpone your repossession, allowing you to keep pace with payments; nevertheless, you must continue to make these payments to secure your automobile in the long term.
No one should be intimidated or ashamed of declaring bankruptcy. Obtaining relief through Chapter 7/Chapter 13 is not immoral or unethical. A hardworking and respectable person can find him or herself in financial distress, and the court recognizes this. There's a reason bankruptcy relief exists. When you require bankruptcy protection, there is no shame in doing so.
The Debtor's Best Interests are Sometimes Served By Delayed Filing
Under certain circumstances, we recommend that our clients wait for some time before filing for bankruptcy. Other taxes, for instance, could become eligible for release at a later date. In such circumstances, the debtor could be well off waiting until a certain period has ended.
In some cases, a debtor might choose to consider waiting to file, however you should first consult with an attorney. When you wait for some time to file, you may avoid the need to reveal asset transfers, preferential payments, or bank accounts that have been closed. Debtors should, however, seek the advice of a knowledgeable bankruptcy attorney to ensure that their actions are legal and done in good faith. Acts that are deemed to be done in bad faith can result in serious penalties, such as discharge denial or criminal prosecution.
When Delaying Your Bankruptcy Filing Is the Best Option
Stress comes hand in hand with debt. And, on occasion, people simply choose to file for bankruptcy immediately to ease stress. However, in some circumstances, patience pays off. Here are a few examples of these scenarios:
You've Recently Relocated to a New State that Offers More Favorable Tax Exemptions
You can retain (exempt) a lot of your assets following bankruptcy to allow yourself a new beginning. Debtors carefully use a listing of exclusions to retain most of their assets.
Since each state has its own set of exemptions, if you've recently relocated, your new state's exemptions may be more beneficial than your previous state's. However, to take advantage of the new state's exemptions, you must first establish residency in that state. Take into account delaying to file your bankruptcy petition until you gain residency in the new state.
This problem has the potential to be cut both ways. If you have more attractive exemptions in your previous state, you can file sooner.
You've Just Started a Low-Paying Job
You have to pass the means test to be eligible for Chapter 7 bankruptcy. The means test examines your typical monthly earnings for the six months preceding your filing. It'll be simpler to clear the means test if you have a lower salary.
If you have found low-paying employment, the means test average income is lowered each month you delay declaring bankruptcy. This occurs since your means test average earnings are adjusted to incorporate your reduced income for each succeeding month. As a result, delaying your bankruptcy filing may help you clear your means test.
But, if your earnings have just increased, you need to file as soon as possible to avoid failing the means test.
You Have Recent Income Tax Debts
Income taxes can be discharged in bankruptcy, as opposed to popular assumptions. Income taxes, however, should be old. When you do not meet the deadlines for paying off your tax obligation, it can be a good idea to wait to file your bankruptcy petition until you pay.
You Recently Purchased Luxury Items or Obtained a Cash Advance
If you buy luxury goods over $725 on credit from one creditor in 90 days of filing for bankruptcy, you normally won't be able to wipe away the debt. Similarly, if you borrow over $1,000 in cash advance from one creditor in 70 days of filing for bankruptcy, you will almost certainly not be able to discharge the debt.
However, be cautious. There's a reason why the laws have been put in place. Delaying a bankruptcy file just to avoid having to repay a debt is not a good idea.
You're Anticipating a Large Tax Refund
If you're anticipating a significant tax refund but cannot use exemption to safeguard it, it will have to be turned over to the trustee. In this case, it could be best to put off declaring bankruptcy and use the tax refund to pay for needs like your children's college fees or car maintenance. When you're required to give accounts for the money, make sure you've got detailed documentation of your spending.
You're Expecting More Debt Soon
You could only discharge the debt that you owe at the time you file. Every debt you accrue after filing for bankruptcy won't be forgiven. Therefore, if you intend to incur further debt soon, such as hospital bills for your soon-to-be-born child or debts to fix your broken house furnace to keep you and your family warm during winter, it makes perfect sense to postpone filing till after you've incurred that debt. A Chapter 7 bankruptcy is only available once every 8 years, so make sure you've made it through the tough times before you can file.
Find a San Diego Bankruptcy Attorney Near Me
If you're dealing with contradictory timing issues, you should seek the advice of an experienced bankruptcy attorney. San Diego Bankruptcy Attorney is available to respond to your concerns 24 hours a day, seven days a week. We serve the San Diego region of California. Call us at 619-488-6168 today.
