If you are considering filing for either chapter 7 or chapter 13 bankruptcy, you should pay careful attention to the timing of your filing. This is especially true if you own property, or have any debts in question. At times, filing to early can cost your dearly, for property owners it can mean losing your property when you may have been able to keep it, had you filed later or not at all. Sometimes consumers find out to late that there is other ways to deal with debt that might not result in bankruptcy.
If you are a property owner in distress you may be considering applying for chapter 7 or 13 to delay a foreclosure proceeding. While it is true that filing will delay this from proceeding, it may not be in your best interest to file so early. You just might have the opportunity for a mortgage modification or loan modification, but if you file to early you will not be eligible for this. The reason being is that once you file for any chapter of bankruptcy, the promissory part of your loan is cancelled out in effect, leaving behind only the lien on the house. This means you can no longer negotiate, neither can the bank. I would strongly advise pursuing any other form of relief first and exhaust all leads and opportunities before even thinking of, let alone filing a bankruptcy.
If you plan in filing for chapter 7 due to losing recent income you may have a rude surprise awaiting you. The courts will look at your income for the last 6 months, not just the current month. lets say you just became disabled or lost your job, this month, but the last 5 months you made $4000 per month, yet this month on disability you made only $1500, the court will add this month, plus the past 5 months and add them up for a “means test”, and in this case your income would likely be to high for chapter 7, leaving you forced to go to chapter 13, or option number 2. Option number 2 here is to delay the filing of your chapter 7 by 2 or 3 months, while your making only $1500 a month so that your overall 6 month income falls before the means test.
Another reason to delay a bankruptcy, is if you have a hefty tax return due you. If you file right before tax season and before you receive your refund, the court will make you surrender it to the bankruptcy trustee. Once in the bankruptcy trustees hands, he or she will distribute it to your creditors. If you wait until after you receive your refund, you can spend it on the things you need, then file a month or two later, keeping your full tax refund.
Another reason to delay bankruptcy is if you owe property that is just above your states exemption levels. Lets say you own a car, its value is $6200 today. That might put you over your states exemption level, and you would lose the car. However if you wait 3 or 4 months to file the value of the car would drop down, perhaps enough of a drop to become exempt under your states exemption laws. This also applies if you have any type of property that would never be exempt, if you delay filing for bankruptcy, you can sell this property off and use the proceeds on things the court cannot take away.
Sometimes it just makes sense to hold off on filing, This article is just general tips, you should talk to a certified financial planer or attorney with these concerns, as this advice is not legal advice, not is it intended to be.