Sometimes, there’s a reason to hurry up the bankruptcy filing. This usually happens when the client really needs protection from creditors. Trying to stop an impending foreclosure sale, Sheriff Levy, wage garnishment, or seizure of a bank account are all very good reasons to get that bankruptcy case filed. When the creditors are moving to seize your assets bankruptcy protection may be your only choice.
Frequently, however, the creditors are not circling overhead, just making you uncomfortable. Or else you may have decided to let go of a certain financial lifestyle and you want to finally move on with your life. It takes a lot of soul-searching and sleepless nights to get to that point so the desire to put the painful past behind is understandable. However, if one of these situations apply to you you may do much better to plan carefully, wait out the storm and file on your own terms:
- You owe significant taxes. Income taxes are generally nondischargeable in bankruptcy but there are critical exceptions as you can see in this video. You may have to wait a year or 2 or 3 so that taxes may become dischargeable. If you can hang on during the wait the ability to get rid of the IRS once and for all may completely change your life.
- You have too many assets. In Maryland bankruptcies individual debtors may claim exemptions and keep approximately $21,000 in the equity in their home, $1,000 in household goods, $5,000 in tools of the trade and approximately $11,000 in everything else. (IRAs, 401(k)s, life insurance policies, cash recovery on account of personal injuries are not subject to any limitations).If your assets are worth substantially more than this you may have to take the time to spend down excess cash or transfer property outright. If that happens you may have to wait up to 3 years to file that bankruptcy case. If you plan properly it will be worth it.
- You have unnecessarily transferred property–cash, stock, or vehicle–to a trusted friend or family member to keep it out of the hands of creditors. This frequently happens when individuals are afraid that the creditors will seize their property but are not aware that they are legally entitled to keep it. If that happens you will have to wait at least a year before filing for Chapter 7 or else you will not get a discharge in bankruptcy.
There are ways to hang on while you wait for the time to pass and be ready to file. If there’s a reason to rush into bankruptcy, you should get it done without procrastinating. But just as frequently, the better course is to calmly survey the landscape and file the case when you and your lawyer have considered all the possibilities.
