When To File Bankruptcy

Should I File Bankruptcy Now Or Wait?

Declaring bankruptcy is an intimidating action. Many people who face the decision decide to blindly take the plunge and report it without considering if they should wait or not. However, it is wiser to wait to declare bankruptcy in certain situations. In these particular cases, filing bankruptcy too early may cause you to lose property that you would have otherwise been able to keep, or you may have to file for Chapter 13 bankruptcy instead of 7. You may even find a better solution to deal with the debt without announcing bankruptcy. There are a few other situations where delaying the declaration of bankruptcy may be beneficial.

 You should delay if you can modify your mortgage.

People often file for bankruptcy to avoid or delay the house being foreclosed. While bankruptcy is a solution to the situation, a large number of individuals present earlier than they should. Filing too early can make getting a mortgage modification more difficult. After you file bankruptcy, many lenders will not enter negotiations with you, and lenders that you were already negotiating with may stop. Their loss of interest is because once you file bankruptcy, the promissory note of your mortgage is canceled, so there is nothing to negotiate. If you wish to modify your mortgage, you should avoid bankruptcy for as long as possible.

You should delay if your income has recently been high.

If you file for Chapter 7 bankruptcy, a court will review your income for the past six months to see if you are eligible. The court refers to the review of your income as the “means test.” If your income is shown to be too high, you may be forced to file Chapter 13 bankruptcy instead. Chapter 13 bankruptcy requires you to pay back a portion of your debts, and Chapter 7 does not.

If your income has recently fallen off because of a layoff or pay cut, by waiting just a few months, you may be eligible for Chapter 7 bankruptcy. A lowered income over the course of six months may make your means test result low enough to qualify. The maximum amount of revenue determined by the means test to be eligible for Chapter 7 bankruptcy differs from state to state.

Delay declaring bankruptcy if you have a property that you do not want to lose.

You may lose property after you declare Chapter 7 bankruptcy. However, there are a few methods or procedures that allow you to keep the property, or you can sell the property and use the proceeds to pay for your debt.

For example, assume you receive a substantial tax refund. If you have just recently received it, or receive it after you file for bankruptcy, you must surrender the return to a bankruptcy trustee. However, if you get the refund and spend it on necessities before you file for bankruptcy, you would use the return instead of surrendering it.

If you own property or assets that are currently worth more than the maximum amount you are allowed to keep from your property exemptions. If you can wait, some of the property may depreciate enough to be lower than the maximum. For example, suppose you have a $60,00 car, but the maximum worth of your assets is only $5,500. However, if you wait a few months, it is possible that the value of the total car may depreciate $500.

If you own property and assets that are not exempt, then the bankruptcy trustee may take your property and sell it. The profits of the sold property would then be given to your creditors. Items that are not exempt are often anything that is not a necessity. So anything that is not your house, car, clothing, household goods, and other necessities may be taken from you and sold once you declare bankruptcy. However, if you sell the property before you file bankruptcy, you would benefit from the properties instead of your creditors. You could then spend the money on the nonexempt property on property that is exempt. It is possible that doing so may get you into trouble, so it may be wise to seek an attorney’s advice before finalizing anything.

You should delay if you expect you will have new debts soon.

Chapter 7 bankruptcy only clears the debt you have accrued at the time of the filing. Any debt that is filed after will be your responsibility. So if you believe more significant expenses are to arise soon, you should wait and have all the debt removed at once.

If you are still unsure if you should file bankruptcy and how to begin the process, an experienced tax attorney in Atlanta will be your biggest asset to ensure that you maximize the benefits of filing for bankruptcy.

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