When to file bankruptcy
When to File Bankruptcy: The Telegraph, a British newspaper, posted an article online today about a man name Paul Potts who was on the brink of filing for bankruptcy and turned his life around to become a multi-millionaire. Like most people, Mr. Potts was making very little money and using his credit cards to supplement for the gap in his income. Things changed for him when he entered into Britain’s Got Talent and one the first prize of £100,000. Although his rags to riches story is out of the ordinary, there are clear signs for most people of when to file for bankruptcy. This article got me thinking about when to file bankruptcy and some factors to consider before doing so. This is one of the most common questions that is asked of attorneys. As with any legal issue, it is extremely important to consult an attorney and to be candid about these factors in order to determine when to file bankruptcy.
When To File Bankruptcy Common Question 1: Can I Do Credit Counseling?
Credit counseling is a wonderful way to avoid filing a bankruptcy case. There are a few pros and cons to consider before committing to a credit counseling plan. First thing to know is that there are two types of credit counseling agencies: “for-profits” and “non-profits”.
The for-profit agencies collection money from you on a monthly basis. They build up a “war chest” and, once they have enough, begin to call your creditors and settle your debts for pennies on the dollar as well as take a monthly amount for their “services.” The problem is that this is something you can do yourself and save the monthly amount that the agency would collect.
The non-profit agencies call your creditors and negotiate reduced minimum monthly payments that may be easier for you to maintain. The question I would ask is “When does it end?” Although these monthly payments may be more manageable, it may take years to pay off the debts. However, some of the plans that these agencies set up might work for some debtors. It is important to go speak to a non-profit credit counseling agencies, at least to see what type of plan you can get into.
In fact, if you do decide to file for bankruptcy protection, to must receive a certificate of completion of a pre-bankruptcy course from an approved non-profit credit counseling agency.
When To File Bankruptcy Common Question 2: Do I Qualify For a Bankruptcy Case?
In order to file a bankruptcy case, you must first determine whether you qualify for a bankruptcy case. There is a bankruptcy Means Test calculation to determines whether you make too much money to file for a bankruptcy case. There is a preliminary test that the United States Department of Justice released to determine whether your income falls above or below median income for your household family size. If you are under median income, then you automatically qualify for a Chapter 7 case. If you are over median income, then you must complete the means test in order to determine whether you qualify.
This test can be rather complicated and therefore it is important to see an attorney to fill out the means test (and preliminary median income test). The timing of when to file a bankruptcy case is determine by the filing party. Therefore, if a debtor does not initially pass the means test, an attorney can assist you in determining whether waiting might make the means test easier to pass.
When To File Bankruptcy Common Question 3: What If I Have a Pending Foreclosure?
There can be several benefits to filing a bankruptcy case before a foreclosure sale has taken place. Filing a case before the sale can buy a family some additional time in their personal residence and thus allow for time to pack, find a new place to live and move. Additionally, there can be some tax ramifications that can be alleviated if a bankruptcy case is filed before a foreclosure sale. It is important to speak to both an attorney and a CPA in order to determine whether your case might make you liable for additional tax debts.
When To File Bankruptcy Common Question 4: Is There A “Better” Time to File?
There are “better” times to file a bankruptcy case. There are a number of situations to consider when determining when to file bankruptcy. First and foremost, there are emotional and moral issues that an individual or family must consider when filing a bankruptcy case. I constantly tell my potential clients to go home and speak to whomever is in their circle of trusted family and friends and have a discussion about whether to file a bankruptcy case or not.
Secondly, lawsuits are a good indicator that it might be time to file a bankruptcy case. When a civil lawsuit is initiated by a creditor and a judgment is received in the case, the creditor can garnish wages, levy on bank accounts and place liens on property. Most of these can be avoided if a bankruptcy case is filed prior to the creditor receiving the judgment.
Lastly, the timing of when to file bankruptcy can be dependent upon the financial activity of a debtor immediately prior to filing a case. It may be obvious to most people, but a debtor cannot fraudulently transfer assets in order to save them from being sold in a bankruptcy case. What may not be so obvious are the sales of and transfers of property and are, seemingly, done innocently. Certain activity may prevent a debtor from receiving a discharge in bankruptcy.
Therefore, it is extremely important to speak to and be completely candid with an attorney. The better scenario is to speak to an attorney prior to selling or transferring assets so that he or she can determine whether the activity would be construed as a fraudulent transfer.