You can avoid financial pitfalls by understanding when—and when not—to file for Chapter 7 bankruptcy, so it makes sense to think about when you should file your case.
In this article, you’ll learn about:
- issues that affect whether you should file now or wait
- filing fast in an emergency, and
- the time you’ll need to wait before wiping out debt in a second Chapter 7.
When You Should File for Chapter 7 Bankruptcy
Correctly timing your bankruptcy is important to ensure the best possible outcome of your case.
When It’s Best to File Immediately
You know that creditor calls will increase if you fall behind on your bills—and as time passes, those same creditors will use increasingly uncomfortable collection techniques to ensure that they get paid.
Here are a few ways an early filing can help prevent a needless loss of money and property.
- Stops litigation. If a creditor sues you, filing for bankruptcy can stop a case in its tracks. It’s best to file before a creditor gets a judgment against you so that you avoid giving the creditor greater rights to your property. (Find out more in Will Filing for Bankruptcy Stop a Civil Lawsuit or Get Rid of a Court Judgment?)
- Prevents (or stops) a wage garnishment or bank levy. A creditor with a judgment can force your employer to deduct money from your check or require your bank to withdraw funds from your account. You’ll save money by wiping out the debt before such actions occur.
- Delays foreclosure. Filing will stop the foreclosure and provide you additional time to stay in your home. However, the relief will be temporary because Chapter 7 bankruptcy isn’t designed to help you keep your home. Chapter 13 can help you catch up on your house payment and stay in the home.
- Delays eviction. This chapter can stop an eviction proceeding if the landlord hasn’t obtained a judgment, but as with foreclosures, it’s likely that the relief will be temporary.
How to File Bankruptcy Fast—Online Emergency or Skeleton Filings
If you need to file a quick bankruptcy, you’re in luck. All filings get submitted through an online service that’s available around the clock. You can speed up your filing even more by using the “emergency filing” or “skeleton filing” process.
An emergency filing allows you to complete and file a few forms instead of the entire packet. You’ll have 14 days to file the remaining forms. If you don’t complete your filing within that time, the bankruptcy court will dismiss your case.
Here are the official bankruptcy forms you’ll need:
- Voluntary Petition for Individuals Filing for Bankruptcy (Form 101)
- Your Statement About Your Social Security Numbers (Form B121)
You’ll also need to:
- prepare a list of creditors (your court will require a specific format)
- proof that you’ve completed a credit counseling course or a waiver request, and
- a filing fee, fee waiver request, or an installment request.
Addressing all of the exceptions that apply to these rules (as well as the impact of an early filing) is beyond the scope of this article. You can find out more about available help by consulting with a knowledgeable bankruptcy attorney.
When It’s Best to Wait
Stress and debt go together—and most people want to file bankruptcy immediately to get out from under this pressure. In some cases, it pays to wait. In others, it might be the only feasible option.
Multiple Bankruptcy Filings
If you’ve received a bankruptcy debt discharge in the past, you’ll have to wait before you can discharge (wipe out) additional debt. The length of the waiting period will depend on the chapter filed previously.
- If you filed for Chapter 7 bankruptcy. You’ll be eligible for another discharge eight years after the first Chapter 7 filing.
- If you filed for Chapter 13 bankruptcy. You’ll have to wait four years before you’ll be able to receive another Chapter 7 discharge.
If you need relief from aggressive creditors before you’re entitled to a discharge, you might consider filing for Chapter 13 bankruptcy. Although you’ll have to pay 100% of your debt, you’ll be able to do so over three to five years without fear of collection activity, such as a wage garnishment.
Be aware that if the court dismissed a bankruptcy within the last 180 days, other rules apply and you might not be eligible to file immediately. You can find out more about waiting periods in Filing for Bankruptcy More Than Once.
Spending Before Filing Chapter 7—the Look Back Period and Fraud Allegations
Sometimes people pay bills in a way that isn’t fair to all of their creditors. And, although rare, some people try to use the bankruptcy system inappropriately by hiding property or running up charge accounts knowing that they intend to discharge the balance.
Your creditors and the bankruptcy trustee (the court-appointed official responsible for overseeing your case) will look for tell-tale signs that something’s amiss in your paperwork.
Here are examples of timing issues you’ll want to consider before you file.
- When did you last purchase a luxury item on credit or take a cash advance? If you use credit to make an extravagant purchase (something that isn’t necessary) within the 90 days preceding bankruptcy, the transaction will be presumed to be fraudulent. Examples might include charging a vacation, cosmetic surgery, or golf clubs. Your creditor can ask the court to deny the discharge of such debt. The same is true for cash advances taken within 70 days of filing.
- When did you last pay a bill or transfer assets to someone else? You must disclose any assets that you’ve given away or sold within a particular period, and payments made to creditors during the “look back” period before you filed. The trustee can unwind (undo) transactions not made in good faith, such as the sale of a vehicle to a friend for less than the fair market value or payments that aren’t fair to other creditors. For example, you must report any debt payments made to relatives within the year before your filing. You must also report creditor payments over certain dollar amounts. You’ll find the time periods and current amounts listed on the official Your Statement of Financial Affairs for Individuals Filing for Bankruptcy
When Timing Issues Are in Conflict
Don’t be surprised if you have multiple issues pulling you in different filing directions. When you should file your bankruptcy case is often a judgment call.
For instance, if you receive a wage garnishment notice shortly after taking out a cash advance, you’ll have to decide whether preventing the garnishment by filing for bankruptcy is worth the risk of an allegation of presumptive fraud.
But delaying a filing doesn’t necessarily insulate you from a fraud allegation and you might decide to pay off the cash advance before filing and take the chance that the trustee will unwind the transaction.
Other complicated situations can present themselves, too. Here are a few examples.
- If you’re divorcing, it’s often better to file a joint bankruptcy with your spouse and wipe out dischargeable debt before the marriage ends—but your income might be too high to qualify as a married couple. You’ll need to decide whether it’s better to file individually while still married or wait until after the divorce.
- “Hot” litigation. In most cases, it makes sense to file for bankruptcy before the court enters a judgment against you—especially when facing a fraud allegation because a creditor can ask the court to determine that a fraud-related debt is nondischargeable (you’ll end up remaining responsible for it). However, if the person suing you is determined to make your life miserable, the lawsuit could follow you to federal court, and the result might be even worse. In some rare circumstances, the better course of action would be to allow the case to go to judgment (and bear the subsequent wage garnishment) and wait to file for bankruptcy until after emotions have settled. (Keep in mind that fraud judgments are nondischargeable—although the creditor must take certain steps first—so this applies in unusual situations only. In most cases, it would make sense to file for bankruptcy before entry of judgment.)
These decisions can get tricky quickly, and in most cases, you’ll benefit from the counsel of a knowledgeable bankruptcy attorney.
Speak With a Bankruptcy Lawyer
Ultimately, filing a Chapter 7 bankruptcy is a serious step. Once filed, it’s unlikely that the court will let you dismiss the matter. When it comes to timing issues, you won’t go wrong seeking the advice of a seasoned bankruptcy attorney.