Yes, even bankruptcy attorneys recognize there are certain times when those in debt should not file bankruptcy. There have been plenty of occasions where clients have entered my office convinced they should file bankruptcy immediately and after examining their case I have determined that bankruptcy should certainly wait, if done at all.
Lets first examine some scenarios where debtors should wait to file. There are certain things not to do before filing. If you have done any of those things, then you should almost certainly wait to file. Those things include:
- Using your credit cards with 90 days of filing
- Taking out credit card cash advances within 90 days of filing
- Paying off a debt to a family member or friend within a year of filing
- Gifting, or selling for below fair market value, property to anyone within two years of filing
Although the implications of filing when having done one of those things vary and depend on the facts of your case, the important thing to note is it is best to avoid filing after having done one of those events. It may be necessary to file in any event, as you could perhaps be facing a foreclosure; however in such an event, the debtor should weigh the loss of the house in the foreclosure versus the possible ramifications to your bankruptcy case by waiting to file.
Another common scenario where a debtor should wait before filing is when the debtor could potentially lose an asset by filing too soon. Examples of assets a debtor could potentially lose after filing include:
- Personal injury lawsuit
- Tax refund
- Account receivable
While the debtor’s ability to retain such an asset will depend on a lot of factors, including which chapter the debtor is filing under and how much of the asset a debtor is allowed to exempt , the important thing to take away is that dates matter in bankruptcy. Thus, if a debtor is at risk of losing one of those assets, he/she needs to examine whether it is best to file now or wait so that the debtor can use the asset prior to filing.
Another big reason a debtor might want to wait before filing is because the debtor might have an income tax debt which is potentially dischargeable should the debtor wait to file. Income taxes can be discharged under certain circumstances. Therefore, a debtor who might not be in need of immediate protection could find that waiting another six weeks to file allows him/her to discharge several years worth of income tax debt.
Additionally, the debtor might be facing the possibility of major medical bills in the near future. In such a scenario, if the debtor were to file now, those debts would not be part of the bankruptcy. The debtor would therefore emerge from the bankruptcy and immediately find himself/herself in major debt.
Finally, debtors often get jumpy when they get behind in their mortgages and feel as if the bank is going to foreclose any minute. It is important for debtors to familiarize themselves with the foreclosure process in their state. For instance, in Georgia the lender must give the debtor one month notice of the foreclosure sale and advertise the foreclosure sale in the legal organ of the debtors residence for four consecutive weeks. Therefore, the debtor has plenty of notice of the foreclosure sale date and can try to work out an arrangement with the lender prior to the foreclosure sale date, if the debtor would prefer not to file unless it is the only way to save the house.
Most importantly, there are certain circumstances where it behooves the debtor not to file at all. Those circumstances include:
- The debtors primary debt is non dischargeable student loans
- The debtor is arguably judgment proof in that he/she has no assets and creditors are therefore not trying to collect against the debtor
- The debtor has little unsecured debt and the debtor would rather give up his/her secured collateral and face a potential deficiency rather than file bankruptcy
- The debtors primary debt is non dischargeable taxes
- The debtor and the creditor can successfully work out an arrangement for the debtor to pay off the debt outside of bankruptcy
- The debtor does not have a lot of debts besides the mortgage and the laws in the debtors state prevent the lender from pursuing a deficiency against the debtor after a foreclosure and the debtor would rather give up the home than file bankruptcy
It is important to note that all of the scenarios above are not the only ones in which a debtor might opt to wait to file or not file at all. They are just examples of scenarios where the debtor really needs to think about the timing and necessity of filing. For more examples of when bankruptcy might want to be avoided, click here.