Taking the time to decide when to file for bankruptcy is beneficial. As a consumer when deciding between a chapter 7 or 13 bankruptcy filing too early can mean losing property you would have been able to keep, or having to file for chapter 13 instead of chapter 7. Other situations that might effect the timing at which a Debtor files are:
Mortgage
Bankruptcy can be a good solution when a Debtor is dealing with mortgage problems, however, people often file much earlier than they need to, which makes it more difficult to obtain a mortgage modification. A mortgage modification is a reduction in the interest rate on a mortgage and can be either short-term or long-term. If the rate reduction is short-term then after a set period of time the interest rate will revert back to what it was originally. Once you file for bankruptcy many lenders will refuse to enter into or continue negotiations over your mortgage because your bankruptcy will cancel your promissory note but not the lien part of your mortgage.
Recent Income has been High
When filing for a chapter 7 bankruptcy the court will look at your income over the past six months to determine whether you are eligible using the “means test.” If your income is too high you may file only for a chapter 13 bankruptcy which requires you to repay a portion of your debts. So if your recent income has been low recently you can often become eligible for chapter 7 bankruptcy if you wait a few months. Once several months of decreased incomes are figured into the means test, your average income over the past 6 months may be low enough to qualify.
Property You Don’t Want to Lose
You may have property that you would lose in a chapter 7 bankruptcy if you filed right away that you could keep if you waited or at least have time to sell the proceeds. Below is property that you can lose and the best way to protect it:
If You Anticipate Having New Debts Soon
It’s a good idea to hold off on filing for bankruptcy if you foresee other significant expenses in the near future. Chapter 7 bankruptcy only erases debts you have as of your filing date. Debts that come along will be yours to deal with.
You Can Sell Property to Pay Bills
As stated above there are property transfers that are appropriate prior to filing bankruptcy. If you as a debtor must pay necessary bills, such as rent, utilities or to buy food or a warm coat. In cases like those you can sell a car, boat, guitar, or any other property you own and use the money to pay bills. If you plan to file for bankruptcy soon after selling property you can usually avoid a problem by:
Further, plan to disclose the property when filling out your bankruptcy paperwork. You’ll also want to take your records to the 341 meeting of creditors so that you’re prepared to answer any questions posed by the bankruptcy trustee overseeing your case.
Debt and Marriage: Filing Bankruptcy in Community Property States (Texas)
Most debts incurred by either spouse during the marriage are owned by both of them even if only one spouse signed the paperwork for the debt. If you incur a debt while you’re single it won’t automatically become a joint debt. An exception: when a spousue signs on as a joint account holder after getting married the once separate account will become a joint account.
After a divorce, only the spouse who incurred the debt owes it unless the debt was incurred for family necessities, to maintain jointly owned assets, or if the spouses keep a joint account. Below are more questions for bankruptcy in marriage:
Income and Property in Community Property States
All income earned by either spouse during the marriage and all property bought with that income is community property, owned equally by both spouses. Gifts and inheritances received by one spouse and separate property owned before the marriage remains separate and are the property of one the one spouse alone. By adding thee gift or inheritance to a joint account for example will erase the protection. All income or property acquired after the divorce or permanent separation is also separate.
What Property can Creditors Take to Pay Debts In Community Property States
In community property states creditors of one spouse can go after the assets and income of the married couple to make good on joint debts, and remember, most debts incurred during the marriage are joint debts. Creditors can go after joint assets in a community property state no matter whose name is on the asset’s title document.
How to Remove Spouse’s Liability
Couples in community property states can sign an agreement with each other to have their debts and income treated separately. By signing a pre or postnuptial agreement before one spouse goes into business. And if you’re already in business, signing an agreement now will protect your spouse from liability for business debts that you already owe, only from liability for future business debts. However, this is an agreement between you and your spouse, it likely won’t affect whether a creditor can pursues you for debt only your ability to pursue your spouses personal assets in satisfaction.
You may also sign an agreement with a particular store, lender or supplier, stating that the creditor will look solely to your separate property for repayment of any debt.
How Does Bankruptcy Work in Marriage
If only one spouse files for chapter 7 bankruptcy in a community property state creditors can collect community debts against the non-filing spouse. The creditor may not forcibly take community assets to pay community debt discharged in the filing spouse’s bankruptcy. The creditor can only collect against he non-filing spouse’s separate property. This protection is known as a “limited community property discharge”. (11 USC § 524(a)(3).)
Anatomy of a Chapter 7 Bankruptcy Case
Before Filing Bankruptcy: Within 180 days you must complete a credit counseling course
Day 1: You must pay a filing fee, file a bankruptcy petition, creditor matrix, and verification of creditor matrix
Day 1-14: File Certificate of Credit Counseling, lists schedules, and statements
Day 13-33: Deadline to provide tax returns and payment advices to trustee
Day 20-30: Deadline to file statement of intention
Day 20-40: Meeting of creditors (341(a) meeting)
Day 50-70: Deadline to perform statement of intention
Day 80-100: Deadline to complete financial management training course file form B423 and Reaffirmation Agreements.
After completing those steps your discharge is granted and the case is closed. You can received a discharge in a chapter 7 case once every eight years.
Anatomy of a Chapter 13 Case
Before Filing Bankruptcy: Within 180 days you must complete a credit counseling course
Day 1: You must pay a filing fee, file a bankruptcy petition, creditor matrix, and verification of creditor matrix
Day 1-14: File Certificate of Credit Counseling, lists schedules, statements and chapter 13 repayment plan
Day 1-30: Begin making payments directly to the chapter 13 trustee
Day 14-43: Deadline to provide tax returns to trustees
Day 21-50: Meeting of creditors 341(a) meeting
Confirmation Hearing: Must take place within 45 days after the meeting of the creditors
Month 36-60: Complete all payments pursuant to your confirmed chapter 13 repayment plan
After Plan Completion: Respond to notice of requirement to file certification of domestic support obligations within 21 days after notice entered
Before Discharge: Complete financial management training course and file form B423
After completing those steps your discharge is granted and the case is closed. You can receive a discharge in a chapter 13 case once every six years.
Disclosure:
Law Firm of Shawn M. Grady, PLLC is a debt relief firm. We help clients file for bankruptcy under the United States Bankruptcy Code.
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