When Delaying Bankruptcy Makes Sense
Under certain circumstances, delaying your bankruptcy can be more advantageous than filing right away.
Under certain circumstances, delaying your bankruptcy can be more advantageous than filing right away. For example, postponing your bankruptcy may allow you to qualify for Chapter 7 bankruptcy, keep more of your property, wipe out more debts, and even avoid challenges to your discharge. Read on to learn more about when it makes sense to delay your bankruptcy filing.
(To learn about when filing immediately might be beneficial, see the articles in Timing Your Bankruptcy Filing.)
Your New State Allows You to Exempt More Property
If you recently moved to a new state, you must reside there permanently for two years before you can use that state’s bankruptcy exemptions. If you don’t wait at least two years to file your bankruptcy after moving, you will likely be required to use the exemptions of your old state. As a result, if you can protect more of your assets with your new state’s bankruptcy exemptions, it may be in your best interest to delay your bankruptcy until you are eligible to use them.
To learn more, see Should I File Bankruptcy Now After Moving to a New State?
Your Income Just Dropped Significantly
When determining your eligibility for Chapter 7 bankruptcy or the amount you need to pay unsecured creditors in Chapter 13 bankruptcy, the bankruptcy means test uses your average monthly income for the six-month period prior to your filing date. This means that if you just lost a high-paying job or your income was otherwise reduced, waiting a few months before filing for bankruptcy can lower your six-month average income and allow you to qualify for Chapter 7 bankruptcy or pay less to unsecured creditors in Chapter 13 bankruptcy.
For more information, see how delaying your bankruptcy can help you after losing a high-paying job.
You Want to Reduce Your Car Loan in Bankruptcy
If certain conditions are met, Chapter 13 bankruptcy allows you to reduce the principal balance of your car loan through your repayment plan. This is known as a car loan cramdown. However, to cram down your car loan, you must first own the car for at least 910 days before filing for bankruptcy. If you can’t satisfy the 910-day rule, you may need to delay your bankruptcy if you want to cram down your car loan.
For details, see When Delaying Bankruptcy May Help Reduce Your Car Loan.
You Have Older Income Tax Obligations
It is possible to discharge certain income tax obligations in bankruptcy. However, it is not easy. Before you can wipe out an income tax debt, it must be sufficiently old enough. As a result, if you want to discharge an income tax obligation, you may need to delay your bankruptcy long enough to fulfill all timing restrictions (assuming you satisfy all other conditions).
To learn more about discharging income taxes in bankruptcy, see When Delaying Bankruptcy May Help Discharge Tax Debt.
You Expect to Incur More Medical Bills
Your bankruptcy discharge only eliminates the debts that exist at the time of filing your case. If you incur a debt after filing your bankruptcy, it will not be wiped out by your discharge. As a result, if you expect to incur more medical debt in the near future, it may be a good idea to delay your bankruptcy to include all your medical bills when you file.
For more information, see Should I Delay My Bankruptcy to Include All Medical Bills?
You Are Expecting a Large Tax Refund
If you are entitled to a tax refund, it is considered property of your bankruptcy estate even if you haven’t received the money yet. This means that unless you can exempt your tax refund, a Chapter 7 bankruptcy trustee can take it and give it to your creditors. However, if you wait to file your bankruptcy until you receive the refund and spend it on necessities for you and your family, there will be nothing left for the trustee to take.
For more details on how to protect your tax refund, see Will Delaying My Bankruptcy Filing Help Me Keep My Tax Refund?
You Recently Paid Back Debts from Family or Friends
If you recently paid back a loan from your family, friends, or another preferred creditor, bankruptcy law may allow the trustee to avoid that payment as a preferential transfer under certain circumstances. This means that the trustee can get that money back for the benefit of all your creditors. Generally, a payment or transfer is considered preferential if made within 90 days of your filing date or within one year if it was made to an insider such as a friend or family member.
To learn more, see how delaying your bankruptcy can help if you recently paid off a debt.
You Put New Charges on Your Credit Cards
If you take out a debt without intending to pay it back, it is considered fraudulent and will not be discharged in bankruptcy. If you use your credit cards or obtain cash advances shortly before filing for bankruptcy, they may be presumed fraudulent and nondischargeable. This presumption gives your creditors a much greater incentive to challenge your bankruptcy discharge. However, delaying your bankruptcy can get you outside the presumption period and make it harder for creditors to prove fraud.
For more information, see why it may be a good idea to delay your bankruptcy if you put new charges on your credit cards.
You Recently Transferred Property Out of Your Name
If you transfer property out of your name prior to filing for bankruptcy, the trustee may be able to avoid the transfer and get the property back. If you intended to defraud your creditors or hide your assets, you may also lose your discharge or be criminally prosecuted. The severity of the consequences depends on your intent, when the transfer occurred, and whether you received fair value for the asset. Generally, delaying your bankruptcy after a transfer can help you avoid a challenge to your discharge or the trustee recovering the transferred property.