There are many decisions to consider when contemplating bankruptcy. Will you file under Chapter 7 or Chapter 13? Will you file alone or with your spouse? Will you reaffirm secured debts or “walk away?” But the most important decision is when to file your bankruptcy. The timing of your bankruptcy filing will determine many aspects of your case.
Your bankruptcy estate is determined on the date you file your case. All property owned and debts owed on the date you file must be listed in your bankruptcy schedules. A great example of how bankruptcy timing can affect your case is during tax season. If you file your case before you receive your income tax refund, your refund is property of the bankruptcy estate. If you file after you receive your refund, but before you spend the money in your bank account, the money is property of the bankruptcy estate. If you file after you receive your tax refund and after the money is spent, there is nothing left for the bankruptcy estate. Timing is everything!
The Bankruptcy Code places time limitations on the debtor for obtaining certain relief. An example of this is the restriction on vehicle cram down in a Chapter 13 bankruptcy case. Suppose you have a car that is worth $6,000, but you owe $12,000 on it. In a Chapter 13 case you may cram down the car loan to its fair market value. In other words, you only pay $6,000 for your $6,000 car. The Bankruptcy Code restricts vehicle cram down to vehicles purchased more than 910 days (2-1/2 years) before the bankruptcy filing date. Waiting to file bankruptcy could save you thousands!
The timing of your bankruptcy filing can make a difference to the Bankruptcy Means Test. This test requires the debtor to calculate income from all sources for the last full six months. This income is averaged and then analyzed to determine disposable income – money you may have to pay to unsecured creditors. Consider the case of a debtor who receives a one-time $12,000 employment bonus in May, then needs to file bankruptcy in November. The “look back” period for calculating income is the last full six months, or October, September, August, July, June, and May. Including May in the calculation artificially inflates the average monthly income by $2,000 per month! If the debtor waits until December 1 to file, May (and the bonus) are not considered by the Means Test. Timing is everything!
If you are experiencing serious financial trouble, speak with an experienced bankruptcy attorney. Your attorney is skilled at identifying timing issues in bankruptcy and will give you options to avoid complications in your case.