Four Reasons to Delay Filing Your Bankruptcy Case

When Should You Delay Filing Bankruptcy?. Getty Images

Maybe you’ve decided to file bankruptcy. It was a hard decision. It took a lot of fortitude, but you finally realized that filing bankruptcy was the most effective and efficient way to settle your financial life. You visit an attorney who looks at your financial picture, including your money and property transactions during the last few years, and even what you expect to happen in the future. Your attorney tells you that it might be to your benefit to delay filing your bankruptcy for some period of time.

Here we list some of the reasons that might happen. See more at Five More Reasons to Delay Filing Your Bankruptcy Case (Nos. 5-9).

1.  You recently paid down a debt.

If you pay an unsecured creditor more than $600 total in the 90 days before filing bankruptcy, the trustee could ask that the creditor turn over that money. It would then be redistributed pro rata to all the eligible creditors.

All similar creditors must be treated similarly in a bankruptcy case. This applies to your actions before filing, also. For instance, you might decide that you want to pay off Uncle Harry the $1,000 you owe him before the bankruptcy is filed so that you can keep him out of the process. The problem is not that you’re paying Uncle Harry. It’s that you’re not paying all the other creditors in the same class. That will include medical debt, credit card debt, and any other debt that is unsecured (has no collateral).

These payments are called preferences.

2.  You recently took on additional debt.

If you recently took on extra debt, it is possible that the debt will not be discharged in the bankruptcy case.

If you took on debt knowing that you could not pay it or intending to file a bankruptcy case, that could be considered fraudulent.

A creditor or the trustee could challenge the discharge of that debt, and if successful the debt will survive the bankruptcy.

Even without the fraud element, certain debts can be excepted from discharge. These include cash advances of at least $925 taken out within 70 days before filing bankruptcy. They also include charges of $650 or more to any one creditor for luxury items made within 90 days before filing bankruptcy. Luxury items are items that are not reasonably necessary for the support of the debtor or a dependent of the debtor.

3. You recently sold, gave away or otherwise transferred property.

If you sold or gave away property within two years before filing bankruptcy, the trustee will scrutinize that transaction to make sure that you received a fair price or other exchange for it. The trustee is allowed to do this to prevent a bankruptcy debtor from protecting property by putting it in the hands of someone else.

These may be gifts or they may be transferred intentionally to get them out of the bankruptcy case. In either event, they’re called fraudulent transfers because you received less than “reasonably equivalent value” for the property transferred.

4.  You expect your income to decrease or your expenses to increase in the near future.

To qualify for Chapter 7 bankruptcy, your financial circumstances are applied to something called the Means Test. The Means Test compares your income and your expenses against national and local norms to determine if you have the means to pay at least a portion of your debt. The Means Test uses an average of your monthly income over the six full months prior to filing your case. The higher the income the more likely you are to have difficulty qualifying under the Means Test.

If you know that your income will decrease (perhaps due to due to layoff, slowdown in business, job change or medical leave), or your expenses will increase (having a baby, additional medical expenses, going back to school) it might make sense to wait until the figures used to calculate the Means Test are more favorable.

These are not the only reasons you might want to delay filing. For more see Five More Reasons to Delay Filing Your Bankruptcy Case (Nos. 5-9).