November 2010 Archives

November 11, 2010

Timing Your Bankruptcy Filing

There are many factors to consider when deciding when you should file for bankruptcy. Here are a few common reasons for delaying or speeding up a bankruptcy filing.

Reasons to Delay a Bankruptcy Filing

Your income recently decreased. One good reason to delay a filing is if your income over the last six months puts you over the means test limit but a recent decrease in your income would put you under the limit if you waited a month or two to file. Remember, the means test is based on your average gross income received during the six-month period just prior to the month you file. So, if you file in October you would average your income during the months of April through September.

You face foreclosure but the sale is not yet scheduled. An impending foreclosure is another reason to delay you filing (or speed it up, see below). If the foreclosure sale hasn't been scheduled yet, you may want to delay your filing until the sale is both scheduled and close to taking place. This tactic will result in a delay of the sale for at least two months and sometimes longer, which will give you an extra couple of months of payment-free shelter.

Certain credit card use. Still another reason to delay filing is if you used a credit card within the previous 90 days or obtained cash advances within the previous 70 days. If the credit card charges totaled more than $550 on any one card and were for luxuries, or the advances on any one card exceeded $850, the creditor can obtain a court ruling that the charges or advances will not be discharged in your bankruptcy. If you have recent charges or cash advances that might survive your bankruptcy you should consider delaying your filing until the three month or 70-day period has expired.

Other reasons. Other common reasons you might want to delay filing are:

  • you made preferential payments to creditors (wait 90 days or one year to file, depending on the type of creditor)
  • you transferred property for less than fair value within the past two years and the property is valuable enough that the bankruptcy trustee may go after it (typically over $1,000)
  • you had a previous bankruptcy case dismissed within the past year (or in some cases within the previous 180 days)
  • you are seeking a mortgage modification (the bankruptcy may bring the modification process to a screeching halt) 
  • you are seeking to discharge back income taxes (wait until three years have passed since the taxes first became due or until two years have passed since you filed a return), or
  • you filed a previous bankruptcy in which you obtained a discharge (wait until you are eligible to file again).

Reasons to Speed Up Your Bankruptcy Filing

Sometimes, you'll want to file for bankruptcy right away. If your income greatly increased during the last few months, but was much lower during the previous three or four months, the sooner you file the better your chance of passing the means test. Also, if your house is in foreclosure and the sale is scheduled and you want to delay the sale, you should file for bankruptcy immediately.

To learn more about choosing the right time to file for bankruptcy, see Nolo's article Should I File Bankruptcy Now or Wait?  Or visit, Nolo's Bankruptcy Center for articles, FAQs, Legal Updates, books, and software on bankruptcy.

November 3, 2010

You Can't Choose Which Debts or Property to Include in Your Bankrupty

Many people I counsel start out by saying that they want to "bankrupt" certain debts and not others, or they want to keep certain items of property out of their bankruptcy. In other words people think they can pick and choose which debts and property go through bankruptcy and which don't.

My response is always the same. No can do. In for the penny, in for the pound. All your property and all your debts that are known to you must be listed in your bankruptcy papers. Once we get that straight I explain that some debts can be reaffirmed (which means the filer will be personally liable for them after bankruptcy). I also explain that more often than not the property they are concerned about keeping can be kept under their state's exemption system.

So why do I make such a big deal about listing everything ? Because bankruptcy fundamentally works on the honor system. You put a ton of information in your bankruptcy papers under penalty of perjury and most, if not all, is unquestioned throughout the bankruptcy process. For that reason, bankruptcy officials are sticklers on complete and accurate disclosure of everything you are asked to disclose. A breach of this disclosure duty will be treated with severity, including a dismissal of your bankruptcy and possibly even a criminal prosecution for perjury. (Learn more in Nolo's article Filing Bankruptcy? Disclose Everything, Hide Nothing.)

So, forget about the idea that you can keep creditors or property out of your bankruptcy. List everything, and most likely you'll be able to keep the property you want to keep, and reaffirm the debts you want to continue paying anyway.