Bankruptcy is a legal proceeding that offers relief for individuals who cannot pay their debts. Sometimes, bankruptcy is the only option for you to reorganize your financial life and protect yourself from collection attempts by creditors. Many factors could push you into bankruptcy, including unpaid credit card debts and overwhelming medical bills. You must consider several aspects of your financial life when opting for bankruptcy.
In addition to having a good reason to declare bankruptcy, you must be conscious when filing the petition. Although there is no exact time when bankruptcy is the right solution, the steps you take before bankruptcy could impact the outcome of the legal proceedings.
Your filing date and the financial steps you take before the petition could impact your eligibility and ability to receive a discharge. California bankruptcy laws are complex. Therefore, hiring and retaining a knowledgeable bankruptcy lawyer is critical. Your attorney will help you determine the right timing for your petition and represent you in your case.
Some of the tips for bankruptcy petition timing you can use include:
Avoid Filing for Bankruptcy When You Anticipate More Debt
When you file for bankruptcy under Chapter 7, the court will appoint a bankruptcy trustee to oversee the case. The bankruptcy trustee will liquidate your non-exempt assets to pay your unsecured creditors. All debts that remain after the payments will be discharged (of the ones that are eligible for discharge).
Under Chapter 13 bankruptcy, you can make repayment plans to pay creditors. Payment and discharge are only made for existing debts that you have listed on the bankruptcy petition. Additionally, the debts covered in a Chapter 13 repayment plan are the ones you list when you file. If you incur additional debt after bankruptcy, you must cover it or wait until you are eligible for another bankruptcy filing.
If you foresee new debt in the near future, it would be best to wait until you have incurred those debts before filing your bankruptcy petition. For example, if you have a sick loved one and the accumulating medical bills have pushed you into bankruptcy, it would be best to wait until the person has recovered. This ensures that all their medical bills are factored into the discharge of the repayment plan.
Delay Filing for Bankruptcy When Your Income Has Decreased Recently
Most people file for bankruptcy because they have a low income and cannot support their monthly bills or pay creditors. However, if you wish to file for bankruptcy under Chapter 7, you should wait to do it immediately when your pay decreases.
Chapter 7 bankruptcy is reserved for individuals unable to accommodate the three to five-year debt repayment plan. A bankruptcy means test determines eligibility for liquidation bankruptcy and ensures that individuals with a high income and assets do not file under this chapter.
The first step in the means test is to consider your monthly income to determine whether it meets the state's median. The income that is factored into this test is that of the last six months. If your income is less than the median, you will be automatically eligible for this type of bankruptcy. If your income has decreased significantly and you want to qualify for liquidation bankruptcy, you may need to wait up to six months to ensure the low income is reflected.
You must document your expenditures if you do not qualify for Chapter 7 bankruptcy based on your income. This allows the court to determine the amount you use for basic needs, including clothes, goods, medical bills, mortgages, and rent. Money used to pay for non-essentials may be diverted towards paying debts.
Avoid Filing for Chapter 7 Bankruptcy When You Seek a Mortgage Refinance
When seeking a bankruptcy discharge, most people want to protect their homes. Although declaring bankruptcy could be a good option to delay foreclosure, many people file petitions earlier than necessary. Most mortgage lenders will decline to work with you when the automatic stay goes into effect. This could derail your chances of receiving a much-needed mortgage modification.
Liquidation bankruptcy does not offer home protection from foreclosure. If you have not been making your mortgage payments, the creditors can contest the automatic stay, which causes you to lose your home. If you consider modifying your mortgage payments, consider delaying bankruptcy until the modification process succeeds.
Delay Bankruptcy if you Have Gifted or Sold Property
Most people understand that filing for bankruptcy could result in losing their valued possessions and property through liquidation. For this reason, some people could decide to sell or gift the property to a family member or friend for protection. Unfortunately, selling or gifting property to another person before filing a bankruptcy petition is risky.
When declaring bankruptcy, the sale of property with fraudulent intent can result in criminal charges and a denial of your bankruptcy petition. Unlike popular belief, you will not lose everything when you declare bankruptcy in California. You could protect property that is covered by bankruptcy exemptions.
Some of the items covered under the state and federal bankruptcy exemptions include:
- Equity in your vehicle and primary home.
- Essential household items.
- Tools of the trade.
- Retirement accounts.
If your property does not fall under the exemptions, it can be liquidated when you file for Chapter 7 Bankruptcy. If you are a Chapter 13 filer, you must make a plan to pay your creditors. Although you can sell your property as you see fit, attempts to defraud your creditors can result in severe legal consequences. The following factors help determine whether your pre-bankruptcy property sale was fraudulent:
- Nature of the property. If appropriate exemptions cover property, selling it will not impact the creditor’s ability to recover their money.
- Timing of property transfer. The bankruptcy court will look into the timing of your bankruptcy when deciding on your petition. You may be cited for bankruptcy fraud if you transferred property up to two years before filing.
- Whether or not you received a fair market value for the property. The amount you received for your property sale before bankruptcy helps the court determine your intentions. Failure to receive a fair market price may indicate that you intended to delay payment to creditors or defraud them.
- How you used the proceeds from the sale. Filing for bankruptcy after selling the property would be okay if you used the sale proceeds to cover necessities like food and medical expenses. If you have sold property and are considering bankruptcy, consult a skilled lawyer.
Avoid Filing for Bankruptcy After Paying your Favorite Creditors
It is no secret that you have favorite creditors. This could be family, friends, or business partners who have loaned you some money. When you declare bankruptcy, the proceeds of your asset liquidation will be equally distributed among your creditors, regardless of your relationship with them.
The bankruptcy trustee can reverse those transactions if you selectively pay creditors before filing for Chapter 7 bankruptcy. This helps avoid preference payments and gives creditors an equal chance at recovering payments. Preference payments have a lookback of up to ninety days.
Therefore, if you have made any payments that could count as preferential payments, you need to delay the bankruptcy filing and wait for some time to pass. If the bankruptcy trustee discovers preferential payments, you could face bankruptcy fraud charges. A conviction for this offense could result in a prison sentence of up to twenty years and fines not exceeding $250,000.
Delay your Bankruptcy Petition if you have Made Substantial Credit Transactions
Although avoiding credit card debt is a common reason for declaring bankruptcy, there are exemptions regarding when to discharge the debt. Maxing out your credit cards before filing for bankruptcy may not be a good idea. Charging for unnecessary purchases is a red flag that the bankruptcy trustee and your creditors will look into when you file a petition for Chapter 7 bankruptcy.
If you file for bankruptcy after using up all your credit card balances, the credit card company can file an adversary proceeding against you. If you lose the lawsuit, the court will declare the credit cards a non-dischargeable debt, which you must cover when your case ends, which could strain your financial life. In this case, the payment will apply to any legitimate debts you may have accrued.
In the lawsuit, the court will determine whether your purchases on the credit card are for luxury or necessary items. In this case, necessities are the items you need to work and run a household. Therefore, if you have engaged in a spending spree, it would be best to hold off on your bankruptcy petition.
Delay Bankruptcy When you are Scheduled to Receive Assets or Money
You may not be considered bankrupt if you expect to receive valuable assets or money. This could be from what other people owe you, an inheritance, or a lawsuit you are pursuing. It would be unwise to file Chapter 7 bankruptcy to save the money you stand to receive.
You must report any money owed to you when you file your Chapter 7 bankruptcy paperwork. Additionally, the reporting requirement will not end after discharge. You must notify the trustee if you receive an inheritance or lottery winnings within six months of filing the petition.
Unless bankruptcy exemptions protect the property or money you receive, the trustee can claim and use it to cover your debts. Therefore, filing for bankruptcy would be wrong if you anticipate receiving a payout.
When the amount you stand to receive is high, you could use it to cover your debts and avoid the disabilities associated with bankruptcy. However, keeping records of your purchases in case you are questioned about the money you received is essential.
Avoid Filing a Bankruptcy Petition if you Have no Income or Assets
Bankruptcy is an option for individuals in a financial crisis. While it may seem strange, filing for bankruptcy when you do not have income or assets in your name might not be advisable.
Most people file for bankruptcy to protect themselves from wage garnishment and other attempts by creditors to collect. Fortunately, not all individuals need these protections. California law limits the amount a creditor can take from your paycheck.
With this rule, most low-income individuals will not have to deal with wage garnishment. If you have nothing to protect, filing for bankruptcy might not be necessary.
Avoid Filing a Bankruptcy Petition When you want to Protect your Property
If you have an asset that you want to protect, you must hold off on filing Chapter 7 bankruptcy. In this type of bankruptcy, the court-appointed trustee will liquidate your non-exempt assets to pay your creditors. If you delay your petition, you will have enough time to liquidate the property and use the proceeds. However, you must be careful to avoid bankruptcy fraud charges. This is done by ensuring that you use the proceeds of a property sale to purchase necessities.
Find a Competent Bankruptcy Attorney Near Me
If you have overwhelming debt that you cannot cover, declaring bankruptcy may be a good option. Chapter 7 bankruptcy involves liquidating your assets to pay your creditors, while Chapter 13 bankruptcy involves creating a repayment plan to cover your debts. While bankruptcy offers a fresh financial start, you must be careful about timing.
Proper timing of a bankruptcy petition helps with eligibility, protecting your assets, and avoiding criminal obligations arising from bankruptcy fraud. If you have received a large inheritance or transferred some assets to another person, it may be necessary to delay the petition. Filing for bankruptcy after the transfer of assets may be viewed as a bankruptcy fraud attempt and cause serious legal consequences.
Additionally, you can lose your inheritance in a liquidation bankruptcy if you file immediately after receiving it. Due to the complexity of bankruptcy laws and timing, our legal expertise at Modesto Bankruptcy Attorneys will go a long way for you. Our skilled lawyers will assess your finances to determine the right time for your petition. We serve clients seeking legal guidance to battle bankruptcy cases in Modesto, CA. Call us at 209-314-3010 for a consultation.
