Timing has a great effect on your bankruptcy discharge. Therefore, there is a right time for everybody to file for bankruptcy depending on their unique circumstances. This is why bankruptcy filing should never be a spur of the moment decision; you need to plan for it properly. Here are some of the effects of timing on bankruptcy:
Bankruptcy laws are a little biased in the way they treat debts and assets. When you file for bankruptcy, only the debts you incurred before the filing date are discharged. However, the assets you receive after the filing date (such as outstanding tax refunds) can be used to pay off your debts.
Therefore, if you are expecting to incur more debts in the near future, it is best to wait until you receive them before making your filing. That way you increase the number of debts discharged in your bankruptcy. For example, if you are getting medical treatment, waiting until your treatment is over may help you have your medical debt discharged.
Bankruptcy exemptions help you keep some property while the rest are used to pay your creditors; state laws determine which assets are exempt. If you are expecting a financial windfall, it might be advisable to wait until after you receive and include it in your exemptions before filing for bankruptcy.
For example, when you receive the money, you can spend it on an asset you can exempt, such as a car. You can even buy some properties and use the wildcard exemption to keep them from the trustee's hands.
One of the eligibility requirements for Chapter 7 bankruptcy is that you must pass the means test. It's a complex process that involves an analysis of your income, expenses, and debts to determine whether you are capable of repaying your debts.
In the means test, the bankruptcy court will consider your income over the past six months from the time you file for bankruptcy. Therefore, if you expect your financial situation to worsen over the next few months, it may be best to delay your bankruptcy. For example, if you have a job contact ending in two months, waiting until after the contract ends may help lower your income and boost your chances of passing the means test.
If you pay back some preferred creditors before filing for bankruptcy, then the trustee can get back the money (clawback) and use it to ensure fair repayment of all your loans. The same thing can happen if you transfer property out of your name to another person's name.
The timing of the transfer is an essential factor when it comes to determining whether a payment or transfer can be clawed back. For example, if you pay a creditor any amount over $600 within 90 days of your filing, the money can be clawed back. Therefore, either don't make such payment or make it and wait until the applicable period elapses before filing for bankruptcy.
For more information, contact New Deal America or a similar company.Share