Frequently I get the question, when should I file my bankruptcy petition? Sometimes that is an easy question at other times it requires a little more thought.
For most people, timing is a matter of personal choice. Generally, if there are no pending legal deadlines, the individual can file when it is most convenient. However if there are critical deadlines, such as a pending foreclosure or lawsuit, timing becomes much more critical. The following are some examples of timing issues:
1. Pending foreclosure: once a foreclosure has commenced, there are critical deadlines that come into play. If you want to save the home, you must file the bankruptcy petition before the foreclosure sale date. While I have filed cases as late as one minute before the scheduled foreclosure auction, I do not recommend waiting that long. There are a lot of things that must be done before the case can be filed and a rush filing carries with it a substantial risk of critical error. If your case is subsequently dismissed because of these errors, you may be limited in your ability to file a new case that will prevent the foreclosure.
2. Pending lawsuit or garnishment: once a lawsuit is filed you have a very limited time to respond. If you fail to respond a judgment can be entered against you and forest collection through garnishments can commence. While a properly timed bankruptcy petition will terminate any pending garnishment, your attorney may have a fight with the collection agency to recover the garnished funds. In the meantime your financial situation is now gotten worse because of the garnishment.
3. Suspended drivers license: if your license has been suspended due to financial matters, such as an uninsured motorist accident or unpaid traffic fines, a well-crafted bankruptcy petition can allow you to reinstate your license. Although I've had clients who have continued to drive on suspended licenses for years, I do not recommend ignoring the license suspension. Not only do you risk additional traffic fines and potential jail, but you might need frequent chiropractic adjustments to deal with the next strain you get from constantly looking over your shoulder.
4. Change in income status: this factor became more of an issue after the Bankruptcy Reform legislation of 2005. Your ability to file a Chapter 7 or a favorable Chapter 13 is based upon what referred to as the Means Test. This test compares your income for the prior six months with the average income for your size family. If your income is above the median, you may be prevented from getting a Chapter 7 discharge or your Chapter 13 Plan payment will be higher than you can reasonably afford. If you have experienced a substantial income increase recently, you may want to file while the average income is still low. On the other hand, if you have just been laid off from a high income position, you may want to wait a few months so that the means test average is more in line with your current financial circumstances. Although there are ways around the Means Test burden, your case is much easier if those do not need to be explored.
5. At risk assets: in bankruptcy you are allowed to exempt or protect certain property, based upon value. If the value of your property exceeds the exemption limit or if you have property that cannot be exempted, that property can be seized by the Chapter 7 trustee. However, sometimes you can convert the "at risk" property into safe assets. Any such conversion should be done well ahead of filing your case and only after consultation with your bankruptcy attorney. There is a right way and a wrong way to convert property.
You should discuss the timing issue with your bankruptcy attorney. Your attorney can counsel you and assist you in determining the best time to file your case. However, it is always important for you to act early. Give your attorney and let time to prepare the documents and file your bankruptcy in a way consistent with your objectives. Please don't expect to meet with the attorney on Thursday afternoon and assume he can put everything together and file your case before the 10 AM Friday morning foreclosure sale!