If you want to get the most out of your bankruptcy, you need to time your filing correctly. Sometimes it is in your best interest to delay your bankruptcy. However, in certain situations, it makes sense to file right away. Read on to learn more about when it may be a good idea to file for bankruptcy immediately.
You Can Protect More Property With the Exemptions of Your Old State
The amount of property you can protect in bankruptcy depends on the exemption laws of your state. Before you are allowed (and required) to use a state’s bankruptcy exemptions, you must be domiciled there (make it your permanent home) continuously for at least two years prior to filing your case. If you moved within the last two years, which state’s exemptions you must use depends on where you were domiciled for most of the six months preceding the two-year period before your bankruptcy. (Get details on the bankruptcy exemption domicile requirements.)
If you can exempt more of your assets with your old state’s exemptions, it would be in your best interest to file for bankruptcy before you’ve lived in your new state for two years. Otherwise, you will have to use your new state’s exemptions and risk losing your nonexempt property.
To learn more, see How to Maximize Your Bankruptcy Exemptions.
Your Property Is About to Get Foreclosed On or Repossessed
If you are facing a foreclosure or repossession, you may need to file for bankruptcy right away to stop the process and save your property. When you file bankruptcy, the automatic stay immediately prohibits creditors from continuing their collection efforts. This means that your lender will not be able to sell your home or repossess your car without court permission.
Normally, Chapter 7 bankruptcy only provides you with temporary relief. However, if you file a Chapter 13 bankruptcy, you may be able to save your home or car by catching up on your missed payments through your repayment plan.
In either case, keep in mind that bankruptcy can only help you if you file in time to stop the sale of your property. In Chapter 13 bankruptcy, you may be able to get your car back even after it was repossessed as long as it has not been sold yet. However, once your property is sold, the automatic stay doesn’t apply because you no longer own the asset. As a result, if your sale date is approaching, filing for bankruptcy right away may be your best option.
To learn more about how the automatic stay can prevent foreclosure or repossession, see the articles and Q&As in our Bankruptcy's Automatic Stay topic area.
You Are Facing a Lawsuit
Just because someone is suing you doesn’t mean you have to file for bankruptcy immediately. However, defending a lawsuit costs a lot of money and may be futile if you don’t have any legal grounds to support your position. If you choose to do nothing, you will usually end up with a default judgment against you. This means the judgment creditor can now try to enforce its judgment by garnishing your wages or placing liens on your assets.
Filing for bankruptcy stays most legal proceedings against you. Further, if the underlying obligation is discharged in your bankruptcy, the lawsuit will be dismissed or the judgment will become unenforceable. However, be aware that your bankruptcy discharge doesn’t automatically eliminate liens placed on your property.
If you don’t file your bankruptcy until the judgment creditor has already obtained a lien on your property, you will need to do additional work to remove the lien. In some cases, you may not be able to get rid of the lien at all. As a result, if you are being sued, it is usually a good idea to file your bankruptcy sooner rather than later.
You Expect to Receive More Property Soon
In Chapter 7 bankruptcy, all property you own or are entitled to as of your filing date is part of your bankruptcy estate. This means that if you expect to acquire any nonexempt property in the near future, you may need to file your bankruptcy quickly to keep it out of your estate.
However, keep in mind that if you are already entitled to receive that property, it is part of your bankruptcy estate and must be disclosed in your case regardless of when you receive it. To keep it out of your bankruptcy estate, your expectation must not rise to the level of entitlement. Also, certain assets (such as an inheritance, property from a divorce settlement, or life insurance and death benefit plan proceeds) are considered property of your bankruptcy estate even if you become entitled to receive them within 180 days after filing your case. (To learn more, see Property in Your Bankruptcy Estate.)
For more articles on when to file for bankruptcy right away, and when to wait, see Timing Your Bankruptcy Filing.