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When is the Best Time to File a Chapter 7 Bankruptcy?

Filing for bankruptcy can be a strenuous process, there is a lot going on you are unsure about half of those things. You have a lot of questions but you get little answers. If you are contemplating about filing for bankruptcy, odd are you have asked yourself “Should I file for bankruptcy?”, and if you’ve asked yourself that question you are probably wondering when is the best time to declare bankruptcy. There are advantages to filing immediately or waiting a bit.

Chance to Modify your Mortgage
Trying to forestall a foreclosure is one of the primary reasons people file for bankruptcy. As soon as they know they are being foreclosed on, they rush to file for bankruptcy without considering any alternatives. While filing for bankruptcy is a good solution, it could make it much more difficult to obtain a mortgage modification due to lenders refusing to begin or continue negotiations over your mortgage since the bankruptcy will erase the promissory note past of the mortgage, there will be nothing left to negotiate. If the filer plans on trying to get a modification on their mortgage in the future, it is probably best to wait on filing bankruptcy, at least until you are surer about your choice between modification or bankruptcy.  However, not filing bankruptcy can mean that your home will be foreclosed on – making the issue of obtaining a loan modification moot.

High Recent Income or Increasing Income
When filing for bankruptcy you must choose which chapter, the most common being Chapter 7. When filing for Chapter 7 bankruptcy, the court will look at the income you had for the past six (6) month. To determine whether you are eligible to file for Chapter 7 you must take something that is called the means test. The means test will ask for your income and through that test the court will determine your eligibility. If your income is too high, then you will be asked to file for a Chapter 13 bankruptcy. A Chapter 13 bankruptcy does not discharge all of your debt, instead it consolidates them to make payment easier. If you had a high income while you were working but you recently took a pay cut or even lost your job. Waiting a few months can make a big difference in your eligibility. After a few months of decreased income are entered into the means test, your income may be low enough for you to proceed with a Chapter 7 bankruptcy. For instance, if your normal income is $7,000 every month but you lose your job and you now receive $2,000 from unemployment, waiting a couple of months will reduce your six (6) month average income.  It has been our experience that is never too early to speak with an experienced bankruptcy attorney.  As a matter of fact we routinely see people that have missed the opportunity to file a Chapter 7 bankruptcy by only a month or two by not seeking advice sooner.

When Property is a Factor
When filing for a Chapter 7 bankruptcy, while rare for the vast majority of filers – it is possible that you may lose some property. If there is some property you absolutely want to keep, consider waiting for a period of time. For instance, if you have an asset you no longer need, you could sell that asset and spend the proceeds on necessities over the next few before you file, that way instead of losing the property, you benefited from it. In another case, when you file for bankruptcy there are certain assets you can keep through property exemptions, if the value of the property you want to keep is too high, waiting a few months can be helpful in case the assets depreciates in value which might bring it within exemption range.  However, it is important to speak with an experienced bankrutpcy atotnrye if you are worried about losing assets.  It has been our experience that most fears of losing property in a Chpater 7 bankruptcy are unfounded.

Debts
If you think that you will be actively acquiring any new debts, it is advisable to hold off on filing for bankruptcy. It is important to remember that a Chapter 7 bankruptcy might not discharge very recent and significant debts incurred just before filing. Also, any debts you incur after you file will be your responsibility. It is best to wait to make sure you will not be incurring any new debt anytime soon so that when you file, and that you are filing with all of your debt. In other cases, it is possible to erase some income tax obligations during bankruptcy. One of the requirements to be able to discharge income tax obligations is that they have to be old enough, so waiting until the time requirements (along with the other preconditions) are met is a good idea.

You Recently Relocated / Moved
There is a residency requirement for filing bankruptcy in a new state, so if you recently moved to a new state, you must live there for at least two years before you are eligible to use that state’s bankruptcy exemptions. It is possible to still file bankruptcy even if you have not lived in your new state for at least two years, however, you will probably have to use the exemptions from your old state. So it is advisable to speak with an experienced bankruptcy attorney and look at both states exemptions if planning on filing for bankruptcy and moving.

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