How Should I Time My Bankruptcy?

In most instances, we advise our clients to file their bankruptcy petition shortly after their initial consultation. But sometimes, we urge clients to "rush" their filing, and sometimes, we advise them to delay the filing. Some of the issues we look at in determining the timing are discussed below.

Typically, Delaying Is Not in the Debtor's Best Interest

In most cases, delaying and waiting serve no useful purpose. Sometimes, debtors believe that if they delay filing bankruptcy, they can somehow manage their financial problems, or find a way to catch up. This is an admirable goal, but for most consumers who are struggling with debt, this is unrealistic. Many consumers have no realistic chance of paying off their debts, and by waiting, they are only exposing themselves to judgments, wage garnishments, bank levies, repossessions and foreclosures.

If you are a consumer who is over-burdened with debt, the sooner you file bankruptcy, the sooner you will be on your way to rebuilding your credit, and starting your life fresh.

If you have tax debts that are not dischargeable in bankruptcy, you will likely be able to pay back those taxes without interest or penalties by fling a chapter 13. However, until you file the chapter 13, the interest and penalties keep accruing. You owe it to yourself to stop procrastinating, and take the steps necessary to start your life fresh!

In some cases, debtors are seeking to wipe out a second mortgage. But a second mortgage can only be wiped out if the value of the home is less than the balance on the first mortgage. As real estate prices stabilize and start moving up, delaying a filing can result in the value of the home rising above the balance on the first mortgage. If this happens, the debtor's ability to wipe out the second mortgage will be impaired.

Sometimes, the Debtor's Best Interest Is Served by Expedited Filing

In some cases, we advise our clients to file bankruptcy without delay. For example, debtors who have been served with a lawsuit summons, or who have a judgment entered against them, are exposed to immediate wage garnishment and bank levies. In those cases, the slightest delay can result in substantial and irreversible financial costs to the debtor. In other cases, the debtors are facing eminent foreclosure or repossession. If the debtor has not filed prior bankruptcy cases within one year, a bankruptcy filing will stop that foreclosure or repossession.

Sometimes, the Debtor's Best Interest Is Served by Delayed Filing

In some cases, we advise our clients to delay filing bankruptcy.

For example, some taxes may become dischargeable at a certain point of time. In those cases, the debtor may be better off to wait until that point of time passes.

In some cases, debtors who had an unusually high income in the past, and whose income is now going down are probably better off to wait until their reduced income takes effect. By showing the reduced income, the debtors may qualify for a chapter 7, or may qualify for a chapter 13 plan with more affordable monthly payments.

There are also situations where a debtor may want to consider delaying a filing, but should talk to an attorney first. A delayed filing may eliminate the need to disclose preferential payments, asset transfers, or closed bank accounts. 

Similarly, by delaying bankruptcy filing, a debtor may eliminate the presumption that certain debts are not dischargeable. However, debtors should consult an experienced bankruptcy attorney to make sure their conduct is lawful and in good faith. Actions that are considered to be in bad faith can have very serious negative consequences, including denial of discharge and even criminal prosecution.

If you are not sure about the timing of your bankruptcy, feel free to contact our office for a free initial consultation with an experienced bankruptcy attorney!