When it comes to filing for bankruptcy, it is not always a matter of “if” but rather a matter of “when.” Depending on a person’s financial situation, it can pay to properly time out a bankruptcy filing. Whether it is the right time to file for bankruptcy can depend on several factors including whether someone is facing foreclosure, vehicle repossession, wage garnishment, or any of the following.
Mortgage Modification
When someone is facing foreclosure, a few different steps can be taken to delay or even prevent the process. One of these solutions is through a mortgage modification. Homeowners facing foreclosure should try this approach first before filing for bankruptcy.
Filing bankruptcy when a foreclosure is looming.
The automatic stay that kicks in as soon as the bankruptcy case is filed will put a halt to legal proceedings, including a foreclosure. However, if the person is pursuing a Chapter 7 bankruptcy case and will not realistically be able to catch up on back payments on the mortgage in time, he or she may be fighting a losing battle. A Chapter 13 bankruptcy filing will often allow the person to catch up on past-due payments while continuing to make current ones. It is important to make sure that the bankruptcy is filed prior to a deficiency judgment being issued. Once that happens, it is very difficult to stop or even reverse.
Recent increase in income.
Bankruptcy courts look at a person’s income over the past six months before determining whether that person can qualify to file for Chapter 7 bankruptcy. If he or she has come into a large sum of money over recent months, this influx of cash could be enough to prevent him or her from filing for Chapter 7. For example, if someone has lost his or her job and was paid a lump sum in a severance package, it may be wise to hold off for a few months before trying to file for Chapter 7 bankruptcy. That large payment may not be reflective of that person’s true circumstances, but the bankruptcy courts will not see it that way.
Expecting a large tax refund?
Certain types of assets are considered fair game in a Chapter 7 bankruptcy and can be liquidated to pay off qualifying debts. A tax refund is considered one of those types of assets. If the filer is expecting a large tax refund soon, it may be best to wait on filing so that the refund can be used to pay for living expenses until it is depleted. Otherwise, it will be seized by the bankruptcy trustee and will no longer be accessible to the filer.
Anticipated New Debts
A bankruptcy case will help the filer eliminate unsecured debts, which includes credit card debt, personal loan debt, and medical debt. If the filer is anticipating on incurring a large expense, such as a major medical procedure, it may be best to wait on filing for bankruptcy until that debt is incurred. That way, the debt itself can be handled in the bankruptcy. However, this does not mean that the filer should make big, luxury or unneeded purchases prior to filing for bankruptcy, such as purchasing a large flat screen television on a credit card, with the intention of never paying the debt. Bankruptcy courts will view this type of transaction as a form of bankruptcy fraud.
If you have questions on this topic or are in financial crisis and considering filing for bankruptcy, contact an experienced Miami bankruptcy attorney who can advise you of all of your options. As an experienced CPA as well as a proven bankruptcy lawyer, Timothy Kingcade knows how to help clients take full advantage of the bankruptcy laws to protect their assets and get successful results. Since 1996 Kingcade Garcia McMaken has been helping people from all walks of life build a better tomorrow. Our attorneys’ help thousands of people every year take advantage of their rights under bankruptcy protection to restart, rebuild and recover. The day you hire our firm, we will contact your creditors to stop the harassment. You can also find useful consumer information on the Kingcade Garcia McMaken website at www.miamibankruptcy.com.