How Soon Is Too Soon To Declare Bankruptcy?
Posted on: 10 March 2021
Declaring bankruptcy means committing to a certain prescription for the financial issues you're facing. It might feel like it's too soon to declare, or it might feel like you should have filed months ago before things got worst.
Confronting this ambiguity can be distressing. However, a bankruptcy attorney will tell their clients to look at a few specific factors regarding how quickly they should proceed.
Now
It's always tempting for a bankruptcy lawyer to tell a client that now is the best time to file. Frequently, it is. If you are facing mounting unsecured debts and feel sure that your income meets the guidelines for automatic qualification for Chapter 7, there's a good chance that filing as soon as possible is best. Nearly-automatic qualification is available to those who make less than 50% of the median income of an average resident of their state.
Similarly, folks looking to restructure their debts under Chapter 11 or 13 might benefit from moving expeditiously. This is especially the case for people who are facing foreclosure on properties. A judge will enter an automatic stay upon acceptance of your initial petition for relief. This will halt the foreclosure process until your case has had time to be heard, and then you may be able to restructure the mortgage through bankruptcy.
Notably, accumulating debts while planning to file bankruptcy may be deemed fraud. It's best not to take on new debts if you're thinking about bankruptcy. Otherwise, the court might see the new debts as an attempt to load up before discharging them. Consequently, a judge might reject the petition.
Later
The primary fear that might drive a bankruptcy lawyer to have you hold off on a case is the appearance of fraud. Particularly, someone who has recently transferred assets to another party may appear to be hiding assets from bankruptcy. This applies even if the transfer went to settle an outstanding debt. Creditors have an equal right to payment in bankruptcy, and that includes the right to claw back money and assets that were transferred to others.
Unfortunately for filers, there isn't a hard guideline for what counts as an improper transfer. The best you can do is hold off for 6 months to a year to avoid the sense of impropriety. Even then, creditors are welcome to demand a clawback if they feel a transfer violated their rights.
Choosing
For the majority of folks, sooner is better. Getting your debts under control today is likely to yield the most benefits. However, you should only make this decision after speaking with a bankruptcy attorney.
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