When Should I Wait To File Bankruptcy?

In many cases, clients come to the Slomka Law Firm in a rush to file bankruptcy.   This is usually because the client faces an imminent foreclosure or repossession, or perhaps the client is already facing a wage garnishment.   We are able to evaluate the case quickly and move with requisite speed to get these petitions filed in time to give relief to the client.   However, in five main situations (there are others which occur less frequently) the client is better served by waiting to file.

 1.        Eligibility for a Discharge.    Under the federal bankruptcy laws, a client can only file for bankruptcy so many times, or so often.  If you have filed a Chapter 7 petition, and received a discharge then you are not eligible for another Chapter 7 discharge for 8 years, or for a Chapter 13 discharge for 4 years.  (Both times are measured from filing date to filing date.)   While all bankruptcies require filing in good faith, and filing on the first day of eligibility suggests an element of bad faith, in some cases in does make sense to allow 8 years to run before filing a new case.

2.  Recent Charges.  It is considered fraud to use a credit card for certain charges or in certain situations, and then to file a bankruptcy shortly thereafter.  The test is whether the person making the charges had a subjective intent to pay the debt, or if they were already planning on discharging the debt through bankruptcy.  Credit charges within 90 days of filing, are strictly scrutinized, and if you have luxury or unusually high charges, it is often beneficial to wait at least 90 days before filing bankruptcy.

3.  Future Debt.   I often tell clients that I hate to file a case on Monday if they are going to incur debt on Tuesday.    Upon filing bankruptcy, all debts BEFORE the filing are included for discharge and NONE of the debts incurred after filing are included.  So before we file and draw that line, it is helpful to make sure the client is not anticipating new debt in the near future.  In many cases this involves non-elective medical debt.  A client who is ill and facing a round of surgery and expensive recovery should consider delaying a bankruptcy filing.

4.  Past Income.   The Bankruptcy means test can sometimes penalize a client who had a high income month, especially a one-time bonus.    This is because eligibility is based on the gross income received in the six months before filing.  So if you had a $10,000 bonus paid five month ago, that single payment can skew your means test and make your file as if you were anticipating future bonuses.   In these cases, it is sometimes advisable to allow 6 months to pass from the receipt of such a bonus.

5. Car Cram Downs.    If your car is worth less than you owe, then in a Chapter 13 bankruptcy, your plan can pay off that debt at the lower figure, saving some clients thousands of dollars, and many hundreds every month.   However, this option is only available if the car debt is more than two and one-half years (910 days) old.  If you have had a car loan for 2 years, you should consider waiting until the debt is 2.5 years old.

The decision to file bankruptcy is a critical one and involve many considerations that are not apparent to lay persons, or even to attorneys who do not specialize in this field.  Howard P. Slomka, and the attorneys at The Slomka Law Firm practice in Georgia and can help you evaluate your bankruptcy options.