The Right Time to File for Bankruptcy

Are you at the point where you can no longer juggle your bills and your negative cash flow is impossible to overcome? When you have problems paying your debts, are threatened with garnishment, foreclosure or if repossession appears to be immanent, bankruptcy may be the best way to deal with these problems. offers the following information to help you decide if it’s the right time to file for bankruptcy. You may have no choice but to file bankruptcy, but choosing the right time to do it is very important.

Advantages to filing quickly

In the case where your creditors have filed legal actions against you, filing for bankruptcy can stop the following kinds of proceedings:

  • When your home is in foreclosure and you have received a Notice of Trustee sale—the sale will be stopped and cannot continue until the bankruptcy filing is completed. This can delay the foreclosure but will not prevent it.
  • If a creditor imposes a wage assignment or threatens to impose a wage assignment, filing for bankruptcy stops that action.
  • When bankruptcy is filed, creditor’s lawsuits against you are terminated.

Reasons to wait before filing

  • When you transfer ownership of property just before you file bankruptcy, the bankruptcy courts will look upon such transactions with suspicion. They may very well decide that such transfers were an attempt to exclude property from being considered in creditor satisfaction. As a result the courts are justified in invalidating such transfer transactions.
  • Have you recently used a credit card to purchase non-essential items or have your credit card purchases exceeded $550? If so the bankruptcy court can decide not to include the credit card this applies to and the corresponding debt on the bankruptcy discharge.
  • Do you anticipate more debt to accumulate in the near future? Are there medical bills that have not been issued yet? It’s better to wait until all anticipated bills have been received before filing in order to achieve the most protection.

Things to avoid

People often make the mistake of depleting their retirement funds to pay off their debts. What they don’t realize is that a portion or the entirety of their retirement fund may be exempt from providing creditor satisfaction. When you drain your pension fund to pay off bills, you not only delete future assets that you may sorely need, you also open yourself up to tax penalties for early withdrawal.

Those who are contemplating both divorce and bankruptcy are well advised to consult an attorney as there are many issues involved. You can avoid many problems when you consult a legal expert.

Things to know about bankruptcy

You can only file for bankruptcy once every six years, so you will want to be cautious when deciding to go ahead with such an action.

  • You should be aware that even when creditors threaten you, they can do nothing when you lack non-exempt property.
  • You cannot be jailed for failure to pay civil debts.
  • Bankruptcy can eliminate most or even all you legal obligation to pay debts.
  • Bankruptcy can stop wage garnishment.
  • Harassment by creditors will be terminated.
  • Terminated utility service will be reconnected if due to non-payment of bills.
  • In cases where your driver’s license was revoked due to non-payment of court ordered fees, you can get it back provided your offense was not a DUI.
  • Bankruptcy will not eliminate secured debts such as mortgages and car loans.
  • Once bankruptcy is filed, subsequent debt is not included in those terms.
  • Certain types of debts are not eligible for discharge under bankruptcy law. These include most student loans, criminal fines, court restitution orders, most taxes, debt related to divorce, child support and alimony.

Types of Bankruptcy

There are different types of bankruptcy, called chapters, Chapter 7 and Chapter 13 being the most popular. With Chapter 7 you get a fresh start. Your debts are canceled. When filling Chapter 7 you, are required to give up all non-exempt property to pay the creditors. If you are current on secured property payments, you can keep this property providing you continue to make regular payments.

Under Chapter 13 you can keep your home and your car as long as you make necessary payments, that may include the agreed upon payment plus regular contributions towards the amounts in arrears. You have 3 to 5 years to repay delinquent amounts.

Credit and Bankruptcy

For a period of 10 years, your credit report will contain the record of your bankruptcy. Late payments and unpaid debts affect your credit rating for 7 years. Just because you file for bankruptcy does not mean that you’ll be denied credit for 10 years. However it’s likely that your interest rates will be higher.

Cost of Bankruptcy

The US Bankruptcy Filing Fee for 2011 is $306.00 for a Chapter 7 case, and $281.00 for a Chapter 13 case. These numbers can change at any time. You do not need to pay at the time of filing, but fees must be paid within a reasonable amount of time. Attorney’s fees may also be required and can be substantial. Some filers may be eligible for free legal aid.

Selecting when to file is your choice

The process of filing for bankruptcy takes time. Certain actions are required. One is creating an inventory of assets and creditors. You must also attend an approved credit counseling program.

Ultimately the choice of when to file your bankruptcy lies in your hands. Approximating the time required for counseling and inventory and considering the current bankruptcy calendar will help you decide when to file.

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