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When Is The Best Time to File For Bankruptcy?

If you have debt issues, you may consider filing bankruptcy. If you’ve weighed your options and have decided that bankruptcy is the best option for you, then your next question is likely, “when should I file?”

Keep reading to learn information that should help you make that decision.

Reasons to File Bankruptcy Right Away

One primary advantage of filing for bankruptcy is what’s referred to as the automatic stay. The automatic stay means that when your creditors are alerted of your bankruptcy filing, they will have to halt their efforts in collecting your debt.

They won’t be able to do any of the following:

  • Call you
  • Mail collection letters
  • Pursue a lawsuit
  • Garnish your wages
  • Try to seize your bank accounts or other property
  • Shut off utilities

Although, if you have a mortgage, the lender may request that the court release the stay so it may proceed with foreclosure. This will still take some time and will at least hinder the foreclosure a bit.

Some other good reasons to file right away are as follows:

  • You’ve been unemployed for a prolonged period, you don’t have unemployment benefits, and have little to no savings.
    • You’re unable to pay for your standard living expenses and have nothing or almost nothing left to pay your debts with.
  • Your home is entering foreclosure.
    • The automatic stay will temporarily prevent the foreclosure from being finalized.
  • Your landlord is trying to evict you.
    • The automatic stay will temporarily prevent you from being evicted. However, as soon as your landlord acquires an eviction judgment, bankruptcy won’t protect you from eviction.
  • Your car may soon be repossessed.
    • The automatic stay will temporarily prevent the repossession.
  • Your wages are being garnished.
    • The automatic stay will prevent this from occurring.
  • You’re being sued for delinquent debts.
    • The automatic stay will halt the lawsuit.
  • You’ll soon start, or just started, a higher-paying job.
    • If you earn income over a certain threshold, you won’t be able to file under Chapter 7, but instead will need to use Chapter 13.
  • You expect to gain ownership of property soon.
    • Typically, for bankruptcy purposes, your financial situation at the time of filing will be considered. If you gain property ownership or incur debts after you’ve filed for bankruptcy, they usually won’t be part of the bankruptcy process. If this is your situation, it’s a good idea to speak to a qualified attorney since this is not a one-size-fits-all circumstance.
  • You’re relocating to a state with less beneficial exemptions.
    • You’re required to file for bankruptcy in the state of your principal residence. This is the state in which your driver’s license is issued, where your car is registered, where you’re registered to vote, and where you file your tax return.

Reasons to Wait Filing for Bankruptcy

Some good reasons to wait to file are as follows:

  • You’re about to start, or just started, a lower-paying job.
    • If you earn income over a certain threshold, you won’t be able to file under Chapter 7, but instead will need to use Chapter 13.
  • You’re relocating to a state with more beneficial exemptions.
    • If your new state has exemptions more beneficial to your situation, you may want to wait to file until your new state is established as your primary residence.
  • You expect to incur more debt.
    • The only debt that will be considered in the bankruptcy process is the debt you have at the time of filing. Any debt after the fact will be owed in full.
  • You want to maximize your exempt assets.
    • This can be tricky because it all depends on the judge to decide what constitutes as fraud. Essentially, a strategy for reducing your nonexempt assets is to sell them off and use the funds to purchase exempt assets.
  • You’ve repaid a debt to a relative.
    • If you repay a debt to a family member more than $600 during the first year after filing for bankruptcy, the court may require the funds to be returned so that you can pay creditors.
  • You sold a property for less than it’s worth.
    • It’s assumed that this is done in an attempt to defraud creditors, and the court may demand the property be returned.
  • Your home was acquired within the past 1,215 days.
    • You’ll only be able to claim a homestead exemption of $155,675.
  • You’re filing under Chapter 13, bought your vehicle in the past 910 days, and owe an amount higher than the vehicle’s value.
    • You can have the balance of your vehicle reduced to the current market value under Chapter 13.
  • You’re expecting a hefty income tax refund.
    • You might want to wait to file until after you’ve received your refund.
  • You recently received a cash advance.
    • You won’t be able to clear a debt if you took a cash advance exceeding $925 within 70 days of filing.
  • You recently bought luxury products.
    • You can’t clear the debt for buying luxury products exceeding $650.
  • You have particular older income tax debts.
    • The following must be done for an income tax debt to be forgiven in a Chapter 7 bankruptcy:
      • The tax return was due no less than three years before filing
      • The tax return was filed at least two years prior to filing
      • The debt hasn’t been assessed by the IRS or it was assessed no less than 240 days before filing
      • You’re innocent of tax fraud or evasion

We Can Help

If you need assistance filing for bankruptcy, our team is here to help. Here at The Gil Law Firm, we are highly skilled in the area of bankruptcy law and have helped many other people in similar situations clear their debts. We may be able to help you, too. Don’t wait—contact us with your case right away.

Call The Gil Law Firm today at (334) 401-4420 to discuss the details of your case.

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