There are many reasons for filing bankruptcy. An individual might be facing foreclosure of a home, repossession of a vehicle, overwhelming credit card debt, medical debt, or debt from a failed business. While it is important to understand why people file for bankruptcy, it is also beneficial to consider when to file. Your timing can impact what chapter of bankruptcy you may be able to file and whether you will have to pay anything back to your unsecured creditors.
Types of Bankruptcy
When a person is seeking relief from their debts, he or she typically files a Chapter 7 or a Chapter 13 bankruptcy. A Chapter 7 bankruptcy is a good option for those with lower income and/or minimal assets. This type of bankruptcy is designed to give people a fresh start by discharging (eliminating) their unsecured debts within four to six months, without the need to repay creditors. Chapter 13 bankruptcy is for those individuals who earn a more significant income and have valuables they want to protect. With a Chapter 13, the person will pay their monthly disposable income to creditors over the course of a three- to five-year repayment plan, in exchange for debt relief. While a Chapter 13 is generally referred to as a plan of repayment of debts over a three- to five-year period, it does not mean that you will necessarily have to pay all of your creditors back at one hundred percent. The amount you will have to pay to your unsecured creditors, if anything, will depend on your financial situation.
Is There a Good Time to File?
In many circumstances, a person cannot delay filing for bankruptcy as he or she is facing a major, unexpected life event and is overwhelmed by the bills. There are, however, ways of timing your bankruptcy so that it puts you in the best position possible.
The first quarter of the calendar year, which includes the New Year, is a common time to file for bankruptcy. People who choose this option typically wait until they have received their annual income tax refund, and then use that refund to pay for the bankruptcy attorney and court fees.
If there has been a job loss and the individual has gotten behind on bills but has found new employment, it may be beneficial to file shortly after starting the new job because the test which determines whether one qualifies for a Chapter 7 bankruptcy looks at income over the past six months. If there were several months in which no income was received, it may help a person qualify for a Chapter 7 bankruptcy to file before making too much money at the new job.
If an individual is filing a Chapter 13 case to stop a foreclosure, which occurs on the first Tuesday of every month in Georgia, it may be beneficial to wait until the first day of the month to file the Chapter 13 case. This will result in the mortgage payment for that month being placed into the Chapter 13 plan of repayment and the individual’s first post-petition mortgage payment will be due the following month. Essentially, this strategy will buy the individual an extra month before resuming regular monthly mortgage payments.
Reasons to File Bankruptcy Sooner
If you are concerned about your property or other assets being seized by creditors, you might want to file for bankruptcy sooner rather than later. Bankruptcy gives debtors special protection through an automatic stay, which is a court order stipulating that all creditors must stop their collection actions during the bankruptcy process. An automatic stay becomes effective immediately upon filing, although it might take creditors a few days to receive notification of the bankruptcy.
There are a number of other situations in which a debtor might want to consider filing for bankruptcy sooner, rather than delaying the process:
- The debtor’s wages are being garnished
- The debtor is unemployed and does not have any savings
- The debtor’s home is about to go into foreclosure
- The debtor’s vehicle is about to be repossessed
- The debtor is being sued by the debt collectors for unpaid bills
Contact the Experienced Bankruptcy Attorneys at Burrow & Associates
For those who are facing significant debts, it is understandable that you might want a fresh start in the New Year. But remember, filing for bankruptcy is a serious decision. Even if you think now, the New Year, is the right time to act, you should still consult with an experienced bankruptcy attorney and discuss what’s the best option for you. If you, or someone you know, needs help with their bankruptcy case, please contact Burrow & Associates at (678) 323-2394 or via our website.