If you have determined that bankruptcy is your best option, you may want to file as soon as you can. In some cases, that is definitely the right move. However, at other times, you may actually want to wait a little bit. Understanding what the best and worst times to file are can help you get the most out of your bankruptcy.
Bad: You Just Lost Your Job
If you’re going to file Chapter 7, you will need to pass what the means test. This test looks at the past six months’ of income, and if the average income per month is too high, you will have to file Chapter 13 instead. This means if you lost your job or had to take a major pay cut within the last six months, you may want to try to wait another couple of months in order to make certain you meet this test.
Good: Before the Holidays
Money you receive as gifts will also be counted as “income” for the purpose of the means test. If you know your family plans on giving you money as your holiday gift, it can impact your means test if it’s a significant amount. File before the holidays to avoid this, or let your family know that you cannot receive cash gifts.
Bad: Before You Negotiate a Mortgage Modification
If you are working with your mortgage company to modify your loan by reducing the interest rate or other part of the mortgage, don’t file bankruptcy. Doing so technically cancels your promissory note, which means your lender cannot negotiate with you because there is nothing to negotiate. This doesn’t negate the lien on the property, though, so you don’t think you now get your house for free. You will need to reaffirm the debt during the bankruptcy process.
Good: After You Incur New Debt
Bankruptcy only affects debts you currently owe as of the date you filed. If you have just taken on new debt and do not anticipate any more, filing bankruptcy now is the right time. This doesn’t mean you can rack up a large amount of debt and have it canceled. There are safeguards in place that prevent this type of bankruptcy fraud. However, if the debt is necessary, such as medical debt, try to wait until after you have this debt to file.
If you have any questions about bankruptcy or want to begin the process, Michael F. Kanzer & Associates can help. Contact us today to arrange a free consultation.