When to File Bankruptcy — Is There a Best Time?
There are many different reasons a person might consider filing for bankruptcy. While medical debt is the number one source of bankruptcy cases in the United States, many others file because of credit card debt, mortgage debt, or failed businesses. But it isn’t just the “why” you need to think about — it’s also the “when.” Is there really a best time to file? On the other hand, are there situations when you should wait and delay your petition? Our New Jersey bankruptcy attorneys explore some of the considerations you should think about before you make the decision.
Reasons to Delay: Future Debts, Mortgage Modifications, and Income Changes
You may want to consider waiting to file for bankruptcy if any of the following statements apply to you:
- You recently took a pay cut or lost your job.
- You want to change the terms of your mortgage in the near future.
- You think you have more debts on the way.
Your Pay Recently Decreased
It sounds counter-intuitive, but this could be harmful if you’re hoping to file for Chapter 7. Remember, Chapter 7 bankruptcy is based on financial need, and is reserved for debtors who cannot realistically afford to accommodate the three- to five-year repayment plan which characterizes Chapter 13. For the sake of determining who is (and is not) eligible for Chapter 7, all prospective filers must take the Means Test, which compares your average income over a six-month period against the median income for a household of your size in your state.
Since the Means Test looks to the past six months, if you were just laid off or demoted, your pay cut will not be accurately reflected in your recent history. If you wait, the Means Test will have a more accurate basis for assessing your income.
You Want a Mortgage Modification
Bankruptcy can help you restore good credit by wiping out your debts and providing a clean slate to rebuild a healthy financial framework. However, a very recent bankruptcy will make most lenders wary, which can create problems if you’re trying to take out or modify a loan, such as a mortgage. When you file, your mortgage promissory note will be cancelled, which means you will lose your ability to negotiate with the bank.
More Debts Are Coming
If you anticipate incurring more debts in the near future, it may be wise to delay filing a little longer. While it is possible to make multiple filings, federal law places strict waiting periods on the time between discharges. The waiting periods for multiple bankruptcy cases are as follows:
- You filed for Chapter 7 — You must wait eight years before receiving another Chapter 7 discharge, and four years before receiving a Chapter 13 discharge.
- You filed for Chapter 13 — You must wait two years before receiving another Chapter 13 discharge, and six years before receiving a Chapter 7 discharge.
Remember, any given case only covers debts which you incurred prior to the filing. You can file again for your new debts as soon as they arise — but you’ll still have to wait for years before you can actually receive a discharge.
Reasons to Act: Collections, Repossession, and Foreclosure
While there are several good reasons to consider postponing your petition, you may want to act sooner rather than later if you’re worried about your assets or property being seized by creditors. But why?
Bankruptcy gives debtors special protection from creditors through something called the automatic stay. True to its name, the automatic stay comes into effect immediately upon filing (though of course it may take several days for your creditors to receive notification of the bankruptcy proceedings).
The automatic stay is an injunction, or court order, which says creditors must cease all collection actions against the debtor while the bankruptcy is in process. If you are worried about your car being repossessed or your home being foreclosed on, filing will postpone these actions and buy you time to potentially reach an alternative arrangement with your creditors.
However, the automatic stay applies only to collection actions which have not already been initiated. If a repossession or foreclosure is already in progress, the automatic stay will not be able to offer protection. Therefore, it’s important to act quickly if you find yourself in this sort of situation.
On a final note, remember that declaring bankruptcy is not a decision to be rushed into or taken lightly. Even if you think now is the time to act, you should always consult with an experienced lawyer before you commit to any major legal decisions.
To start discussing your financial situation in a free and confidential legal consultation, call the Philadelphia bankruptcy attorneys of Young, Marr & Associates at (609) 755-3115 in New Jersey or (215) 701-6519 in Pennsylvania today.