The decision to file for bankruptcy is a tough one for most people. It’s common for Los Angeles residents to struggle with debt for years before deciding it’s time to take action and put debt stress behind them. Though it’s generally never too late to file bankruptcy, delaying unnecessarily can be costly. Waiting too long to file can mean:
- Wasted money paying interest and late fees on debt that will ultimately be discharged
- Wage garnishment that can throw your household budget into turmoil
- Loss of your home, car, or other property that serves as collateral for secured debt
- A continuing toll on your health, sleep, relationships, and even job performance
If your debt is unmanageable and having a significant negative impact, it’s usually better to take action sooner than later. But, there are exceptions. In some circumstances, filing too soon can be just as bad as–or even worse than–waiting too long.
The best source of information about the factors that impact the best timing for a bankruptcy petition is an experienced Los Angeles bankruptcy attorney. Borowitz & Clark offers free consultations so you can explore issues like this before making decisions that will impact your financial future.
Here are a few of the reasons some people choose to delay a bankruptcy filing:
- Recent gifts or sales of property. When you file for bankruptcy, your recent transactions are scrutinized. If you’ve given away anything of value leading up to filing bankruptcy, or have sold property for less than its market value, the bankruptcy trustee may be able to undo those transactions and reclaim the property for the bankruptcy estate.
The trustee looks back just 90 days for most transactions, but the lookback period is longer for “insiders.” For an individual bankruptcy filer, insiders include certain relatives, business partners, and businesses the debtor has an interest in. When insiders are involved, the lookback period is one year.
It’s also important to note that the standard lookback periods can be extended if the trustee suspects fraud. California law allows creditors to look back as far as four years prior to the bankruptcy filing for fraudulent transfers, and in some cases, even longer.
- Recent credit transactions. Though most people don’t think about it in these terms, buying something on credit or taking a cash advance knowing that you’re planning to discharge the debt in bankruptcy is fraud. While any credit card use within the 90 days leading up to bankruptcy can raise a red flag, certain types of transactions are presumed non-dischargeable. These include luxury goods and services over a certain value purchased within the 90 days prior to the bankruptcy filing and any cash advances taken within the 70 days before bankruptcy.
The analysis isn’t always cut-and-dried, though. The presumption of non-dischargeability may sometimes be overcome. And, purchases that fall outside the 90-day window may still constitute fraud if the trustee or a creditor can demonstrate that the bankruptcy petitioner did not intend to pay those debts. So, it’s best to consult a Los Angeles bankruptcy attorney, even before the 90 days period expires, if you are uncertain about the impact of recent credit card purchases.
- Assets you’re scheduled to receive. You may not think of money and other property you haven’t yet received as assets, but the bankruptcy court does. In fact, some people who are expecting a payout of some sort think it would be a good idea to quickly file bankruptcy before it arrives, to avoid losing those funds to a creditor.
If you have a lawsuit pending (or even a claim that could lead to a lawsuit), a debt someone owes you, or other property you already have a right to, that property becomes part of your bankruptcy estate. Unless the property can be protected by an exemption, the trustee may be able to claim the asset for the benefit of your creditors. So, the time may not be right to file for bankruptcy.
- Prior bankruptcy filings. The U.S. Bankruptcy Code restricts consecutive bankruptcy filings. If you’ve previously filed Chapter 7 bankruptcy and received a discharge, you’ll have to wait eight years before you’re eligible to file again and receive a discharge. The waiting periods are shorter for other combinations, such as filing Chapter 13 after a Chapter 7 case.
Other restrictions may apply as well. For instance, the automatic stay–a powerful tool for stopping collection activity as soon as you file bankruptcy–may be limited if you’ve recently had another bankruptcy case dismissed within the past two years.
If you’ve filed bankruptcy before and are considering filing again, be sure you understand the timelines and will get the full benefit of your bankruptcy filing.
- Lack of income and assets. It may sound strange to say that you may not want to file for bankruptcy if you have no money. But, for most, the key purpose of Chapter 7 bankruptcy is to discharge unsecured debts. Discharging those debts protects you from collection action, including debt collection lawsuits that could end in wage garnishment and attachment of bank accounts.
But, not everyone who is in debt in Los Angeles needs those protections. California law limits the amount creditors can take from your paycheck to 25% of your wage or 50% of the amount earned in excess of 40 times the minimum wage–whichever is less. That means many low-income people in Los Angeles have little or no garnishable income. California law also protects money in your bank account up to the “minimum basic standard of care” for a family of four in Region 1, currently $1,826.
In all of the cases mentioned above, it is highly recommended that you seek out the advice of a consumer bankruptcy expert, to find out if they apply to you. Even if they do, there may be ways to approach these issues so they do not prevent your from getting the debt relief you’re looking for. When used strategically, bankruptcy can be a powerful tool for regaining control of your finances and building a more stable financial future. But, there is a lot to consider in determining whether bankruptcy is right for you, which type of bankruptcy better suits your situation, and when the time is right to file bankruptcy. A free consultation with one of our experienced bankruptcy attorneys can help you find the right solution for you. Schedule yours right now by calling 877-439-9717 or filling out the contact form on this page.