Bankruptcy: When Is the Best Time to File?
Determining when to file for bankruptcy is a highly personal and individual decision. A bankruptcy filing should always be considered the last resort, as it can leave an indelible mark on your credit report for 10 years or more. In these turbulent economic times, however, more and more people are finding themselves in need of that last resort.
If you are drowning in large amounts of high-interest debt without the means to repay it, filing for bankruptcy may be the only way to get your head above water. There are two types of personal bankruptcy—Chapter 7 and Chapter 13. With Chapter 7, also known as straight bankruptcy or liquidation, most of your unsecured debts are discharged and some of your property may be sold. With Chapter 13, a repayment plan is set up with creditors, and you keep all of your property.
Which type of bankruptcy is right for you depends on your specific financial circumstances. In general, Chapter 7 filers are often those who do not have many assets to lose and do not have the money to pay for debts after covering basic living expenses. Chapter 13 filers, on the other hand, are often those who are experiencing temporary but significant setbacks such as divorce, job losses or illnesses. The rules that govern bankruptcy limit who is qualified to file for Chapter 7. The best way to find out if bankruptcy is right for you and which type is appropriate for your situation is to consult an experienced bankruptcy attorney.
A knowledgeable bankruptcy attorney can help you decide if and when to file for bankruptcy. When you file can make a difference both in how you pay for the bankruptcy and how much it costs you. If you choose to work with an attorney, there will be legal fees in addition to filing fees. For those who are already having financial difficulties, these fees are often an additional challenge.
According to Carey Ebert, president of the National Association of Consumer Bankruptcy Attorneys (NACBA) and a partner with Ebert Law Offices, P.C. in Fort Worth, Texas, there really is no best time of the year to file for bankruptcy per se, but there are certain times when filings are more popular. One of the most popular times is in the beginning of the year when tax refunds go out. Many bankruptcy filers use their tax refunds to pay for their bankruptcy.
Bankruptcy filings also tend to cluster at the end of each month for several reasons. For one, the new rules for bankruptcy filings, which commenced in 2005, require pay stubs for the past 60 days and a “Means Test” to determine eligibility. If the month passes without filing, more information for the next month needs to be gathered to satisfy these requirements. Additionally, bankruptcies filed to stop a foreclosure often occur just before the first Tuesday of every month when foreclosures are filed.
Finally, experts suggest that filers pay all of their necessary bills before filing so that their checking account balances are not artificially high. Filing for bankruptcy just after depositing your paycheck can work against you. The balance in your checking account on the day of the filing counts as an asset in the bankruptcy. Filers need to make sure bill payments clear from their checking accounts before filing. “We always recommend our clients pay their last month’s bills with cashier’s checks or money order so they don’t have to worry about that,” says Ebert.
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