In Part I of this subject, I previously discussed the following reasons you might wait to file bankruptcy: (1) You are not yet facing garnishment or foreclosure (2) You paid debts or gifts to family members or friends recently (3) You have tax debt you can discharge by waiting to file and (4) You need time to come up with the fees to file bankruptcy.
I will now discuss the final five factors I consider when determining if a case is “ripe” for filing. Please note however that it is possible for some of these things to be in conflict, which will cause the debtor to “pick his poison.” This means the debtor might want to wait to file to discharge tax debt, but need to file ASAP to stop a foreclosure.
**** Have you previously filed bankruptcy and does that impact what Chapter you can file at this moment?
While it is a myth that you cannot file bankruptcy multiple times in your lifetime, there are some restrictions against certain bankruptcies based on previous filings. The primary restriction to concern yourself with is that you are ineligible to receive a Chapter 7 discharge if you have filed Chapter 7 and received a discharge in the previous eight years. While you can still technically file Chapter 7 again in that time window, the fact that you are ineligible for discharge should preclude another filing in almost every circumstance. Multiple times I’ve been approached by clients who wanted to file Chapter 7 again, but were not past their 8 year time window. The client’s choices at that moment were to wait to file Chapter 7, file Chapter 13 now or deal with creditors outside of bankruptcy. Note that you can even file a Chapter 13 at most any time, even immediately after a Chapter 7.
**** Are there any assets you can lose right now by filing Chapter 7?
Chapter 7 bankruptcy is the liquidation bankruptcy chapter. While there is no repayment plan, the debtor can lose assets if he has more assets than he is allowed to liquidate. Therefore, before filing the debtor should compare his assets against his allowable exemptions to determine if he can keep everything. A debtor will not lose assets in a Chapter 13 bankruptcy, but under the “best interests test” the debtor will have to repay the unsecured creditors at least what they would receive in a Chapter 7 liquidation. Thus, the amount of non-exempt assets factor into the Chapter 13 repayment plan amount.
**** Are you currently eligible to file in the venue you want and can waiting impact which exemptions you use?
The debtor can file in the jurisdiction where the majority of his assets reside, or where he has resided for the greater part of 180 days. Therefore, if the debtor has just moved, he might be ineligible to file in his current locale and may need to wait 90 days. Also, as previously discussed, the debtor can exempt a certain amount of assets. The debtor’s exemption will vary based on the state the debtor resides or recently moved from, as well as how recently the debtor moved. The debtor therefore could theoretically want to wait or file immediately to get better exemptions.
**** Are you “judgment proof?”
The concept of being “too broke to file” was discussed in a previous blog. The term judgment proof is not a technical legal term, but more or less means that the creditor might not be able to collect against the debtor even if it sues him and obtains a judgment. Therefore, sometimes a debtor might prefer to have an uncollectable judgment against him without a bankruptcy versus discharging a particular debt in bankruptcy.
**** Will the means test result be more favorable to you by waiting?
The means test is a six-month look back on income versus necessary expenses to determine if the debtor essentially has too much monthly disposable income to receive a Chapter 7 discharge, as well as the amount the monthly repayment should be in Chapter 13. To obtain the best means test result, in certain circumstances it might behoove the debtor to file immediately, while in others it might be best to wait. While there is an additional subjective element to this test, the point is the debtor who had a high income but recently got laid off, might not qualify for a Chapter 7 discharge at the moment, but might do so after waiting another couple of months.
The emphasis of this blog is that you should not just pick a filing date out of the clear blue sky. Filing dates matter, particularly in Chapter 7, where there is no automatic right to dismiss your case. An experienced bankruptcy attorney should be able to guide you through these rough waters.
Peter Bricks is a member of the National Association of Consumer Bankruptcy Attorneys (NACBA). He is a regular contributor to bankruptcyblog.org has bankruptcy attorney offices in Woodstock, Jonesboro Cumming, Atlanta and Dunwoody.