The timing of your bankruptcy case is important, sometimes extremely important. It can determine if your case is as successful as it can be.
Five weeks ago we started a series on why you should get legal advice from a bankruptcy lawyer. We’ve also been making a point of showing why it’s smart to do so early, when you start considering bankruptcy.
It’s super important to get this legal advice so that you can learn:
- if bankruptcy is the best option for you, and how to pursue other alternatives
- how Chapter 7, 11, 12, and 13 work, and whether either are right for you
- what actions you should take to position yourself, whether you’re possibly or definitely filing bankruptcy
- what you should avoid doing
- the best timing for your bankruptcy filing
If you want to look back, we covered #1 and #2 five weeks ago. The next four blog posts got into different aspects of what you should and shouldn’t be doing before filing (#3 and #4). These included keeping assets (4 weeks ago), taking on debt (3 weeks ago), filing income tax returns and paying the taxes (2 weeks ago), and paying child/spousal support (1 week ago).
Today we start on how to best time the filing of your bankruptcy case.
Frankly, this is a huge topic. That’s because so much our financial lives are tied to time. One day you don’t owe a debt. The next day you go to a medical appointment and immediately owe a debt to the doctor’s office. You get the bill with a due date (after insurance pays a portion, if you’re fortunate enough to have insurance). If you can’t pay it by the due date, the debt goes into collections at some point in time. Then at some point you get sued, which turns—a certain amount of time later—into a judgment against you. After a short period of time (usually), that turns into a garnishment of your paycheck. All of these steps involve timing, with deadlines and time-based events.
Similarly, bankruptcy involves many issues of timing. Using the example above, filing bankruptcy stops the debt collection process wherever it is at the time. If a lawsuit has been filed by the collector but no judgment yet entered, bankruptcy stops the entry of a judgment. If a judgment has been entered but no garnishment yet ordered, bankruptcy filing at that time prevents the garnishment. If your wages are the midst of being garnished, bankruptcy stops the garnishment. Whether it stops your current paycheck from being garnished or the next one, it all depends on timing.
Important Examples of Good (and Bad) Timing
The timing of your bankruptcy filing can affect all of the following. Whether:
- the bankruptcy case includes recent or ongoing debts or not
- you have to pay an income tax in full, in part, or not at all
- you must pay interest on an income tax because of a tax lien
- you can discharge (legally write off) a credit card debt, or a portion of it
- you can discharge a student loan debt
- you qualify for a vehicle loan cramdown—reducing monthly payments, interest rate, and total debt—and still keep the vehicle
- you qualify for a personal property collateral cramdown—paying less—and still keep the collateral
- you stop the repossession of your vehicle in time, or lose it to the vehicle loan creditor
- you prevent the foreclosure of your home in time, enabling you to catch up over time
- you get more time to sell your home, including years from now
- you qualify for a Chapter 7 case under the “means test,” or must instead file under Chapter 13
- you qualify for a 3-year Chapter 13 payment plan or instead must pay for 5 years
- your sale or gifting an asset is a “fraudulent transfer”
- your payment to a friendly creditor is a “preference”
- you can keep all of your assets if you’ve moved from one state to another in the past several years
Just looking down this list gives you a better idea how important the timing of your bankruptcy can be. We’ll be covering these timing issues one-by-one in our next blog posts. There’s a good chance that one, or even a number of them, apply to you. If any do, and you need to know more about it, please call us. We would appreciate being your bankruptcy lawyers, helping you fully benefit from the law.