Friday, March 11, 2011

When to file bankruptcy

Deciding whether bankruptcy is best for your situation is complex enough. If you have decided you need bankruptcy relief, the next question to consider is whether to file now or file later. Although filing provides immediate protection against collection efforts, there are situations in which you will be better off if you wait.

No health insurance: Bankruptcy petitions only address the debts you had on the date of filing, so you will be stuck with debts you incur later. Some debts are practically involuntary, such as medical bills for important treatment. If you have no way to pay for serious unforeseen medical bills in the near future, then you may want to wait until you are able to obtain insurance before you file bankruptcy so that your debts will stay cleared for a long time after your case.

Expected inheritance: A Chapter 7 case generally looks only at your assets on the day of filing, but what if one of your parents passes away after filing? Property that you inherit and life insurance proceeds you receive can still come into your bankruptcy estate if something happens within the six months after you file. If you have the unfortunate situation where you know someone may die and leave property to you, you need to think about how bankruptcy would affect that situation. If your inheritance is substantial, you may be able to deal with your creditors on your own terms. Even if it is small, you may prefer to not have a bankruptcy trustee disrupting the choices your siblings or other heirs want to make about selling or dividing the property.

Recent loan payments: Have you recently paid back a substantial loan to a family member? Bankruptcy trustees can avoid preferential transfers. In other words, they can sue your relative to get back much of the money you paid in order to share the money with the banks and credit card companies you owe. Trustees can look back at your payments to creditors over periods of 90 days or twelve months, with the longer period for "insiders" such as relatives or corporations in which you have a certain interest. Some debtors need to wait to file in order to let this payment history move farther back into the past.

Means test timing: Do you qualify for Chapter 7 under the means test now? Has your income gone up or down? Debtors with new, well-paying jobs may want to file sooner while they still qualify. Those who have lost good jobs may want to wait until they qualify. The means test looks back at your six months of income history.

There are a number of timing issues in bankruptcy cases. If you think bankruptcy relief can help, make sure you consult an attorney who will help you identify timing issues and not rush you into filing a petition too soon. Sometimes you need to file sooner to avoid emergencies, but sometimes you need to wait to file to avoid other hassles.

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